CAP 2 SFMA Assessment 2011

dee359

Hi, I notice that last year there was a thread for discussion of the SFMA assessment and wondered would anyone be interested in doing the same this year?

I have just printed it now so ill post my thoughts when I get a chance to look at it..

louise1985

Ya I too seen last years thread and think its a great idea, wont get chance to look at it until the weekend but will post any ideas myself or my work colleague has on it

marbilio

yeah great idea,

I have just printed it as well and will have a look over at it over the coming days

Whemair0128

Definitly a great idea,

I was just wondering would anyone have a copy of the competency statement for cap 1 2009/2010 just so I can see what areas of finance and management accounting were examinable last year because I came straight onto cap2 from my undergraduate studies.

Thanks:)

An Citeog

Whemair0128 wrote: »

Definitly a great idea,

I was just wondering would anyone have a copy of the competency statement for cap 1 2009/2010 just so I can see what areas of finance and management accounting were examinable last year because I came straight onto cap2 from my undergraduate studies.

Thanks:)

I don't think anything has changed from last year on it, so there shouldn't be a problem working off the 2010/11 Competency Statement: http://www.charteredaccountants.ie/Students/Student-Services/Exams/CAP1/

EveT

had a first look at the case study this morning, so will get the ball rolling with a few points that I think may come up....

1. marble wash hand basins - variances, think they will give us the standard cost card as additional information to work out lots of variance, sales price usage, materials price usage, labour variances, variable and fixed o/h variances.

2. life cycle costing and target costing - with ref to Jim Clarion. theory?

3. Modern tiles limited - not sure here....I reckon a budget, sales volume - production etc, reference to NPV later implies cash budget needed. didnt see payment terms for a cash budget though except it says 'all costs incurred in the year they relate to'.

I would think they will give us a figure for WACC as additional information so maybe calculate NPV based on the budget we do?

could be going along wrong lines here...

4. due diligence..theory?

so additional info I think will def be standard cost card to enable variances to be calculated and WACC figure.

please let me know if you think the above is along right lines/wrong lines, especially ideas with regards to the info given for Modern Tiles Limited.

hope this helps get the ball rolling!

donkey10

Hey,

I agree with calculating the variances and obviously reproducing the information in an opertaing statement (ie actual and budgeted)

Modern Tile Limited-Possibly what they want us to do here is use the ABC costing method to calculate whether the project (ie. takeover of the firm) will actually give a positive or negative NPV, this is probably all linked to the due diligence aspect and determining whether it would be worthwhile etc.

Also in relation to the WACC-possibly the value will be given on the day to complete the NPV calculation, but also an explanation on what it means will be required (as it says John McDaid is not totally confident with his knowledge in this area)

So any other possibilities?

CFA

I would agree with variances and then reproducing the information in an opertaing statement (ie actual and budgeted). with the answer you get here you'll have to right up a management report.

For Modern tiles limited clearly you will have to work out whether it is a positive NPV or negative and you will be given the WACC in the exam. Using the ABC method seems to be indicated as they give you the drivers.

I agree with you Eve that something around life cycle costing could be there.

Also the learning curve might come up.

Something around due diligence I agree with Eve.

and I also agree that in the exam we will be given the standard cost card to enable variances to be calculated and WACC figure.

sarah g

Guys...
a few more points that I thought of that I dont think have been said yet...
1. maybe theory around standard costs, types of standards ie currently attainable, ideal etc, advantages and disadvantages. there may also be some theory in relation to ABC.
2. I thought they may give us more information on the company they are thinking of acquiring... may ask us to do a valuation on this?
3. it may be that they give us the variances to the marble basin sceanario and we need to work back to find the budgets ourselves.

EveT

sarah g wrote: »

Guys...
a few more points that I thought of that I dont think have been said yet...
1. maybe theory around standard costs, types of standards ie currently attainable, ideal etc, advantages and disadvantages. there may also be some theory in relation to ABC.
2. I thought they may give us more information on the company they are thinking of acquiring... may ask us to do a valuation on this?
3. it may be that they give us the variances to the marble basin sceanario and we need to work back to find the budgets ourselves.

Hi Sarah,

I think the theory around standard costs in a good point, and ABC theory.
Im not sure about the valuation, they dont seem to really have hinted at this, more giving info towards the NPV appraisal I would think.

Also Id think they will give us the budget values, since they mentioned they are waiting on the standard cost card, for us to work out variances, but the reverse is a possibility.

has anyone any ideas how exactly they will want the 2nd big part done? will it be budgets? or a NPV? would we assume the cashflows are in the same period as the costs are mentioned in the question for NPV purpose?

Newaglish

Could someone throw up a copy of the case study and some of us non-students can help out also?

sarah g

thanks!

An Citeog

EveT wrote: »

Im not sure about the valuation, they dont seem to really have hinted at this, more giving info towards the NPV appraisal I would think.

I think a more likely question would be to use the PV of the cashflows for the 3 years to calculate the maximum that the firm would be willing to pay to acquire Modern Tiles.

KeithMcVitty

Hi everybody

I have completed some calculations based on the figures presented within the case study. Should I attach it and see if it's on the right/wrong tracks?

I have reviewed the theory and I must admit alot of key areas have been identified. I aim to run through very carefully tomorrow, so i'll post my views regarding the theory very soon.

sarah g

Hi,
I think this is a good idea if we compare our calculations.

I am hoping to post up some answers at the start of the week for production and cash budget using the info given and see how everyone is getting on

S

KeithMcVitty

I have completed some theory based on Target Costing and Lifecycle costing

Is everyone getting on well with their work?

Would you like me to post it up?:D

LOS25

I haven't done CAP1 so just spent yesterday evening becoming familiar again with variances. Could we be asked to produce an operating statement reconciling budgeted profit to actual profit? (apologies if this has been said already!)

Going to look at second part of question now. Good idea to compare calculations. Hopefully will have something ready later.

aka accounts 2010

Hey guys,

I'm just getting at look at the case study for the first time now so I'll hopefully have something together later on or tomorrow.

Probably a good idea to get a few calculations up on this, at least we know where we all stand then and anybody can make a few suggestions then.

Acc7777

Anyone get similar figures to this for the NPV calculations?

[HTML]Year 1 2 3

Total Revenue 250,000,000 316,000,000 380,000,000

Total Costs -62,250,000 -64,800,000 -68,080,000


Profit 187,750,000 251,200,000 311,920,000[/HTML]

An Citeog

Acc7777 wrote: »

Anyone get similar figures to this for the NPV calculations?

[HTML]Year 1 2 3

Total Revenue 250,000,000 316,000,000 380,000,000

Total Costs -62,250,000 -64,800,000 -68,080,000


Profit 187,750,000 251,200,000 311,920,000[/HTML]

Yeah, they're the same as I got.

KeithMcVitty

I would like to confirm that I have the exact same figures, which gives me great reassurance.

How do these figures link into identifying a value for the target business Modern Tiles?

I have completed some theory on the WACC, Target Costing and Life Cycle Costing. If anybody needs it, just let me know.

Could people help me out with the due diligence aspect of the case study?

I'm not sure what to expect with this area.:eek:

A2011

KeithMcVitty wrote: »

I would like to confirm that I have the exact same figures, which gives me great reassurance.

How do these figures link into identifying a value for the target business Modern Tiles?

I have completed some theory on the WACC, Target Costing and Life Cycle Costing. If anybody needs it, just let me know.

Could people help me out with the due diligence aspect of the case study?

I'm not sure what to expect with this area.:eek:

I am going through WACC, Target Costing and Life Cycle Costing at the moment, it would be great to see if I am going along the right track:)

Due diligence is in the Merger and Acquisitions part of the course - I don't know if it is part of the CAP1 syllabus - it's a fairly short part of the book - I reckon it would just be what would the due diligence team do or comment why Lately should carry out one or possibly why might modern tiles not give accurate and reliable information (think that question would be fairly unlikely) I can't think of how else it could be asked but I am only going by the bit I read

An Citeog

KeithMcVitty wrote: »

I would like to confirm that I have the exact same figures, which gives me great reassurance.

How do these figures link into identifying a value for the target business Modern Tiles?

I have completed some theory on the WACC, Target Costing and Life Cycle Costing. If anybody needs it, just let me know.

Could people help me out with the due diligence aspect of the case study?

I'm not sure what to expect with this area.:eek:

In the note on Capital Expenditure, it says that "proposals will only be accepted if they achieve a positive NPV after three years when discounted at the company's WACC". It's likely that we'll be given the WACC on the day as additional information. You can then use that to calculate the PV of the cash flows for the 3 years. This amount should theoretically represent the maximum that Lately Limited would be willing to pay to acquire Modern Tiles.

aka accounts 2010

KeithMcVitty wrote: »

I would like to confirm that I have the exact same figures, which gives me great reassurance.

How do these figures link into identifying a value for the target business Modern Tiles?

I have completed some theory on the WACC, Target Costing and Life Cycle Costing. If anybody needs it, just let me know.

Could people help me out with the due diligence aspect of the case study?

I'm not sure what to expect with this area.:eek:

Hey Keith,

I wouldn't mind having a glance at your theory if you wouldn't mind. I have my NPV calculations complete and they match up with what has been posted, thank god..

I'm meeting up with one of my former university management accounting lecturers tomorrow evening and it would be great if I had some of your theory ideas with me so that I could bring more to the table and maybe we could develop on it and report back to you.

I'm planning on working on the due diligence tomorrow before I meet him

Cheers!!!

tomfoolery60

Acc7777 wrote: »

Anyone get similar figures to this for the NPV calculations?

[HTML]Year 1 2 3

Total Revenue 250,000,000 316,000,000 380,000,000

Total Costs -62,250,000 -64,800,000 -68,080,000


Profit 187,750,000 251,200,000 311,920,000[/HTML]

Only looked at the case today for the first time and I did out a spreadsheet with the cash flow. I got those exact figures also, feeling quite relieved now! Since there is some info about year 4 I reckon they might set it up in the exam by giving us enough info re Year 4 to complete the net CF and then tell us to make a terminal assumption (i.e Year 4 CF growing at x% per annum) with a WACC in order for us to determine the NPV/Maximum bid price. Perhaps make a bid recommendation regarding this in memo form or something.

Keith wouldn't mind that theory if you have it! Need to look at all that tomorrow. Some Christmas break this is....

EveT

hey guys,

what are 'blue sky' proposals etc? I never heard of them, when I google it I get various companies with blue sky in the name!

LOS25

I have gotten the same figures. Can someone help? To calculate whether it is a positive NPV, we need to know the initial cost of investment? Do ye think this will be given to us in the day together with the WACC?

tomfoolery60

LOS25 wrote: »

I have gotten the same figures. Can someone help? To calculate whether it is a positive NPV, we need to know the initial cost of investment? Do ye think this will be given to us in the day together with the WACC?

Yes you would need to know what you would have to pay to acquire the company (and thus receive the cashflows). You would also need some info about cashflows from year 4+ to be able to work out NPV.

"Blue Sky" just means a new project created from scratch. Like a greenfield development. As the case says, an acquisiton is not a Blue Sky project as you are acquiring an exisiting business.

LOS25

Thanks for that.

The question says that Capital Expenditure proposals will only be accepted if they achieve a positive npv after three years so maybe we don't have to worry about cashflows after year 3?

tomfoolery60

LOS25 wrote: »

Thanks for that.

The question says that Capital Expenditure proposals will only be accepted if they achieve a positive npv after three years so maybe we don't have to worry about cashflows after year 3?

Quite right! Really should read this more closely.

An Citeog

LOS25 wrote: »

I have gotten the same figures. Can someone help? To calculate whether it is a positive NPV, we need to know the initial cost of investment? Do ye think this will be given to us in the day together with the WACC?

NPV = - Initial Investment + Present Value of future cash flows

As this is only an investment proposal, there is no initial investment amount. Therefore, you can use the Present Value of the cash flows in Y1-3 (discounted using WACC, which will most likely be given as additional info on the day) to calculate the investment amount at which NPV would be zero. This is one of the due dilligence steps. Depending on the decision of the board, the company may then enter into negotiations to acquire Modern Tiles. This PV figure will be used as a theoretical ceiling ie. the price above which Lately Limited will reject the proposal and look elsewhere.

KeithMcVitty

Hi everybody

Please see my theory on target costing and let me know what you think.

Could someone critically appraise it please? Make alterations if necessary etc etc.

I still have to write up my theory on the WACC so i'll be back shortly with more.

I would encourage everyone to share information like this;)

A2011

KeithMcVitty wrote: »

Hi everybody

Please see my theory on target costing and let me know what you think.

Could someone critically appraise it please? Make alterations if necessary etc etc.

I still have to write up my theory on the WACC so i'll be back shortly with more.

I would encourage everyone to share information like this;)

Hi Keith do we not need to link the target costing to Jims argument "that a target costing approach to pricing would enable Lately to compete profitably in the price sensitive tile market" ? ..... I'll put up my theory later so you can compare

KeithMcVitty

yeah you are absolutely right. the theory i attached is very general.

It does need to be altered in some way so that it relates to the situation. But, I hope it can act as a basis for coming up with a better answer. Thanks for the reply.

it would be much appreciated if you posted some of your work for comparison.

Thanks

T586

Hello

I have a query with regards to life cycle costing and target costing.

I am a bit confused as to whether they are the same thing or different? Does target costing include all life cycle costs?

Thanks for any help you can give.

EveT

hi guys,

I got the same figures for the NPV using the info given. What extra info do you think we will get regarding this part, obviously WACC so we can do the discounting.

I know there have been a few comments about whether we will receive an initial investment amount, what do people think about this? I would think we will receive an initial cash outlay amount, it says they are thinking about investing so surely we need to know the amount they invest? and have this as a cash outflow Y0? what do people think on this?

Thanks

EveT

Hi guys,

did a calc for NPV using a WACC of 10%, as I said above I think we will get an initial cash outlay on day so left a gap for it,

any feedback would be very welcome!

QueenV

Does anyone think there's a possibility that they would let us calculate the WACC?

EveT

QueenV wrote: »

Does anyone think there's a possibility that they would let us calculate the WACC?

I would think that is unlikely, they havent given any information indicating it, theres always a chance but I would think its more likely they will give us WACC to do the investment appraisal

gr1

Hi everyone,

I agree with the topic areas that you guys have all come up with. I am wondering about the CAP 2 content though. I know it's supposed to be weighted towards CAP1 but can anyone see any likely CAP 2 areas apart from due diligence? Surely there should be something else?

EC89

Hi everyone, I was just wondering what is a management report?? Is it just a letter on the differences and causes of variances? Thanks for your help

QueenV

^^^
I was actually going to ask the same question.Within the management report you'll probably have to give a reason for the variances maybe write a few words.

Does anyone else have an ideas of what else we might be require to write up in the management report?

TIA

laurenceb

Sample reports can be found in the SFMA toolkit.

CZ2011

laurenceb wrote: »

Sample reports can be found in the SFMA toolkit.

Theory for life cycle costing and target costing is in Solution 41 page 143 of the toolkit

disco duck

Does anyone think that we could be given something about the Performance reporting on the last page of the assessment, then review this material and give comments on the information for the board?

Fishes

Have people done work on the variances which we will be required to calculate for the operating statement? If so, we should post them up and compare answers...

LYLO

here's what i am thinking. still putting everything together but will post everything up over the next couple of days so feel free to post up your work. i have a lot of web research done so will need to re-write it first

Financial analysis – Ratios

Due diligence - it states in the case study that it has not been carried out yet and the purchase will be based on this

Standing Financial Instructions (SFIs) i don’t think it a theory question will come up as they listed a few the case study but just in
· learning curve – i am thinking this could be asked
· economies of scale (this is reduction in the unit costs due to learning curve being phased out
· Operating Statements – this was mentioned a few times so we’ll need a template and definition

Capital Expenditure – it states in the report that John is waiting on a reply about the WACC so we will need a template drawn up and a detailed description of same, the book is excellent in the explanation of this so if we need more we’ll be ok with the book

Performance Reporting – someone on this will definitely come up
· Flash Reports – these are used to give a snap shot or like a summary of a certain area of the business and how it is performing we can do some research on this, i have a funny feeling it will come up as part of a theory question
· Cash Flow Forecast – perhaps part of theory


Variances – there is a mention of actual v budget so we should have a full list of variances and perhaps templates and possible reasons for variances

Budgets – the way the info is laid out with the details of the figures, i am getting sales, promotion, and cash budget vibe

Target costing - This is used when a company starts to launch a new product, we start with a target profit and work out the expense and cost to charge – this will defiantly apply since the company only deals with Bathroom Fittings so they are entering a new market and because it is “price sensitive tile market” we will need a definition of this as well as it relates to a company having the correct pricing policy in place

Life Cycle Costing – this is like another way of calculating the NPV of investment, it takes into account all the future costs that will be incurred, can also be used for acquisition, so this will be something to look into

Company reconstruction – the company is looking to takeover another company. Know the process, key documents supporting an acquisition and audit procedures

CAP2 syllabus that got a mention in the case study
How a company funds acquisition – External, internal etc
Company Valuations
Performance Management (Measurement) – Financial, environment, non-financial
Advanced Variances
Due Diligence
Risk management

KeithMcVitty

LYLO wrote: »

here's what i am thinking. still putting everything together but will post everything up over the next couple of days so feel free to post up your work. i have a lot of web research done so will need to re-write it first

Financial analysis – Ratios

Due diligence - it states in the case study that it has not been carried out yet and the purchase will be based on this

Standing Financial Instructions (SFIs) i don’t think it a theory question will come up as they listed a few the case study but just in
· learning curve – i am thinking this could be asked
· economies of scale (this is reduction in the unit costs due to learning curve being phased out
· Operating Statements – this was mentioned a few times so we’ll need a template and definition

Capital Expenditure – it states in the report that John is waiting on a reply about the WACC so we will need a template drawn up and a detailed description of same, the book is excellent in the explanation of this so if we need more we’ll be ok with the book

Performance Reporting – someone on this will definitely come up
· Flash Reports – these are used to give a snap shot or like a summary of a certain area of the business and how it is performing we can do some research on this, i have a funny feeling it will come up as part of a theory question
· Cash Flow Forecast – perhaps part of theory


Variances – there is a mention of actual v budget so we should have a full list of variances and perhaps templates and possible reasons for variances

Budgets – the way the info is laid out with the details of the figures, i am getting sales, promotion, and cash budget vibe

Target costing - This is used when a company starts to launch a new product, we start with a target profit and work out the expense and cost to charge – this will defiantly apply since the company only deals with Bathroom Fittings so they are entering a new market and because it is “price sensitive tile market” we will need a definition of this as well as it relates to a company having the correct pricing policy in place

Life Cycle Costing – this is like another way of calculating the NPV of investment, it takes into account all the future costs that will be incurred, can also be used for acquisition, so this will be something to look into

Company reconstruction – the company is looking to takeover another company. Know the process, key documents supporting an acquisition and audit procedures

CAP2 syllabus that got a mention in the case study
How a company funds acquisition – External, internal etc
Company Valuations
Performance Management (Measurement) – Financial, environment, non-financial
Advanced Variances
Due Diligence
Risk management

Does anyone have the solutions to chapter 17 of the finance textbook. I was wanting to getmore theory on mergers and acquisitions. thanks

LYLO

hey

no i dont, strange - i am missing chp 3, 17 & 18 . check out Qfinance on the web, very good!! I got most of my notes from there

EveT

in relation to working out fixed production overhead variance, do we know if it is a marginal or absorption costing system or does this matter?

BrendanCro

EveT wrote: »

in relation to working out fixed production overhead variance, do we know if it is a marginal or absorption costing system or does this matter?

I don't think it matters too. As there is no opening or closing stock the budgeted profit would be the smae under each method.

Aslo as budgeted and actual production are the same, using absorpton costing the extra variance (fixed overhead volume variance) would come out as zero (I think)