ACCA Financial Management UPDATED ACTUAL Questions and CORRECT Answers
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Course
ACCA Financial Management
Institution
ACCA Financial Management
ACCA Financial Management UPDATED
ACTUAL Questions and CORRECT
Answers
The nature and purpose of financial management - CORRECT ANSWER- Financial
management is concerned with the efficient acquisition and deployment of both short- and
long-term financial resources, to ensure the objectives...
ACCA Financial Management UPDATED
ACTUAL Questions and CORRECT
Answers
The nature and purpose of financial management - CORRECT ANSWER✔✔- Financial
management is concerned with the efficient acquisition and deployment of both short- and
long-term financial resources, to ensure the objectives of the enterprise are achieved
Management accounting - CORRECT ANSWER✔✔- Concerned with providing information
for the more day-to-day functions of control and decision making
Financial accounting - CORRECT ANSWER✔✔- Concerned with providing information
about the historical results of past plans and decisions
Corporate strategy - CORRECT ANSWER✔✔- Concerns the decisions made by senior
management about matters such as the particular business the company is in, whether new
markets should be entered or whether to withdraw from current markets. Such decisions can
often have important financial implications
Business strategy - CORRECT ANSWER✔✔- Concerns the decisions to be made by the
separate strategic business units within the group. Each unit will try to maximise its
competitive position within its chosen market. This may involve for example choosing
whether to compete on quality or cost
Operational strategy - CORRECT ANSWER✔✔- Concerns how the different functional
areas within a strategic business unit plan their operations to satisfy the corporate and
business strategies being followed. Interested in the decisions facing the finance function.
These day-to-day decisions include all aspects of working capital management
External
- the government
- the community at large
- pressure groups
- regulators
Managerial reward schemes - CORRECT ANSWER✔✔- One way to help ensure that
managers take decisions which are consistent with the objectives of shareholders is to
introduce carefully designed remuneration
packages. The schemes should:
- be clearly defined, impossible to manipulate and easy to monitor
- link rewards to changes in shareholder wealth
- match managers' time horizons
to shareholders' time horizons
,- encourage managers to adopt the same attitudes to risk as shareholders
Common types of reward schemes include:
Remuneration linked to:
- minimum profit levels
- economic value added (EVA)
- revenue growth
Executive share option schemes (ESOP)
Corporate governance codes - CORRECT ANSWER✔✔- The director/shareholder conflict
has also been addressed by the requirements of a number of corporate governance codes. The
following key areas relate to this conflict
Non-executive directors (NEDs)
- important presence on the board
- must give obligation to spend
sufficient time with the company
- should be independent
- at least half the board to be independent NEDs
Executive directors
- separation of chairman and chief executive officer (CEO)
- submit for re-election
- clear disclosure of financial rewards
Value for money (VFM) and the 3 Es - CORRECT ANSWER✔✔- VFM can be defined as
'achieving the desired level and quality of service at the most economical cost'
The 3 Es:
Economy: Minimising the costs of inputs required to achieve a defined level of output
, Efficiency: Ratio of outputs to inputs - achieving a high level of output in relation to the
resources put in (input driven) or providing a particular level of service at reasonable input
cost (output driven)
Effectiveness: Whether outputs are achieved that match the predetermined objectives
ROCE (return on capital employed) - CORRECT ANSWER✔✔- This is also known as
accounting rate of return (ARR)
ROCE = (Average annual profits before interest and tax / Initial capital costs) x 100
or ROCE = (Average annual profits before interest and tax / Average capital investment) x
100
Average capital investment =
(Initial investment + scrap value) / 2
Decision rule:
If the expected ROCE for
the investment is greater than the target or hurdle rate (as decided by management) then the
project should be accepted
Advantages and disadvantages of ROCE - CORRECT ANSWER✔✔- Advantages include:
- simplicity
- links with other accounting measures
Disadvantages include:
- no account is taken of project life
- no account is taken of timing of cash flows
- it varies depending on accounting policies
- it may ignore working capital
- it does not measure absolute gain
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