BANKING ACADEMY OF VIETNAM

BTEC HND IN BUSINESS (ACCOUNTING)

ASSIGNMENT COVER SHEET

NAME OF STUDENT
REGISTRATION NO.
UNIT TITLE
ASSIGNMENT TITLE
ASSIGNMENT NO
NAME OF ASSESSOR
SUBMISSION DEADLINE

VU HONG NHUNG
S06-018
Unit 2: Managing Financial Resources and
Finance
as a Resource
Decisions
1 of 2
Nguyen Xuan Quang
23th April 2013

I, __________________________ hereby confirm that this assignment is my own work

and not copied or plagiarized from any source. I have referenced the sources from
which information is obtained by me for this assignment.

________________________________
_________________________

Signature

Date

---------------------------------------------------------------------------------------------------------------FOR OFFICIAL USE

Assignment Received By:

Date:

Unit Outcomes
Outcome

Evidence
for the
criteria

Assessors
Feedback
decision
First
atte
mpt

Understan
d the
sources of
finance
available
to a
business

LO1

Identify the
sources of
finance
available to
a business
Assess
the

1.1

implications
of the
different
sources

1.2

Evaluate
appropriate
sources of
finance for
a business
project

1.3

Rewo
rk

Internal
Verificati
on

Outcome

Understan
d the
implicatio
ns of
finance as
a resource
within a
business

LO2

Evidence
for the
criteria

Assessors
Feedback
decision

Analyse the
costs of
different
sources of
finance

2.1

Explain the
importance
of financial
planning

2.2

Assess the
information
needs of
different
decision

2.3

makers
Explain the
impact of
finance on
the financial
statements

2.4

Internal
Verificati
on

Outcome

Assessors

Evidence
for the
criteria

Feedback
decision

Merit grades awarded

M1

M2

M3

Distinction grades awarded

D1

D2

D3

Internal
Verificati
on

Outcome

Evidence
for the
criteria

Assessors
Feedback
decision

Assignment
( ) Well-structured; Reference is done properly / should be done (if any)

Overall, youve

Areas for improvement:

Internal
Verificati
on

Outcome

Evidence
for the
criteria

Internal
Verificati
on

Assessors
Feedback
decision

ASSESSOR SIGNATURE

DATE

NAME: ........................................................................

(Oral feedback was also provided)

STUDENT SIGNATURE

DATE

NAME : .......................................................................

FOR INTERNAL USE ONLY

VERIFIED
YES
NO

DATE

: .........................................................

VERIFIED BY : .........................................................
NAME

: .........................................................

EXCUTIVE SUMMARY

London is a developing country in the world. Although the world are suffering
economy recession, London still keep developing in top in Europe.
Founded in 1995 in London, UK, through many years of establishing and
developing, Bite has become a strong company and contribute in Londons economy.
Bite Asia Pacific has over 300 of us working together across 15 offices to provide full
service marketing and corporate communication network, helps companies make the
most of business opportunities in vibrant. Dong Kuang is a friend of Paul Mottram the
Executive Vice President , Asia Pacific. Paul asked Dong Kuang to consider opening a
Vietnam Branch. Dong Kuang wants to work with Paul but Dong Kuang needs time to
consult some financial advice before making decisions. This report will evaluate the
difference sources of finance and provide necessary for Dong Kuang to implement of
finance as a resource in business.
In this report will focus on evaluating this variety of aspects:
-

Assess the sources of finance available to Kuangs business

Evaluate the implications of the difference sources

Discuss appropriate source of finance for business project of Dong Kuang

Explain the costs of different sources of finance in Dong Kuang

Identify the important of financial planning

Evaluate the information needs of different decisions makers

Assess the impact of finance on the financial statement when Dong Kuang
cooperate with Paul.

Contents
Evidence for the criteria............................................................................................................................ 2
EXCUTIVE SUMMARY ............................................................................................................................. 7
INTRODUCTION ........................................................................................................................................ 9
MAIN BODY .............................................................................................................................................. 10
I.

Sources of finance available to the business: ................................................................... 10

I.1. Sources of finance available to business:.............................................................................. 10
I.2. The implications of different sources to Dong Kuang: ......................................................... 11
I.3. The appropriate sources of finance for each expansion stage ad making
recommendations on the best way of raising finance at each stage: ...................................... 12

II.

The implications of finance as a resource within a business: ....................................... 15

II.1. The cost of difference sources of finance for Kuang should his enterprise becomes
Limited:............................................................................................................................................... 15
II.2. The importance of financial planning to Kuang:................................................................... 16
I.3. The information needs of different decision makers: ........................................................... 16
II.4. The impact of finance on the financial statements to Kuang: ............................................ 17

CONCLUSION .......................................................................................................................................... 21
References ................................................................................................................................................ 22

INTRODUCTION
England is an industrialized country with significant proportion of countrys
income from industries such as automobiles, aircraft, etc Although the world are
suffering from economy recession, manufacturing in UK still account for 26% of the
UKs GDP. This can be good signal of UKs economy.
Since establishing and developing, Bite Asia has a ten-year record of helping
local, reginal and multinational companies engage with a variety of stakeholders. Bite
have become a global consultancy with many offices across North America, Europe and
Asia Pacific. Bite has unrivalled capabilities in strategy and content, social media with
providing communications and business results for clients by marketing mix. Paul
Mottram the Executive Vice President, Asia Pacific wants to integrate with Dong Kuang
to open a Vietnam Branch. Because Vietnam is a potential country to develop by a
huge population and lower salarys employees than other countries. Beside, Vietnam
has plentiful natural resource, this country is developing and as a member of WTO
(World Trade Organization) so Vietnam always welcomes foreign investment. To make
sure of Dong Kuangs decisions, Dong Kuang has some financial advices to participate
in business venture with Paul representing Bite Asia Pacific.
This report will analysis the different sources of finance for Dong Kuang ensure
his decisions. Moreover, this financial project are providing information of finance as a
resource in the business.

MAIN BODY

I.

Sources of finance available to the business:

I.1. Sources of finance available to business:

It is very important for businessmen to determine the scale to open a company
because it influence with the leaders when the company put in danger of bankrupt.
There are three different type of companies which Dong Kuang can choose: sole
traders, partnerships, limited company.

Type

Advantages

Disadvantages

-Have the owned profit

-Get credit card from suppliers and bank

-Total control the

hard because of no track record

Sole traders/

management by owner

-Owners has total liability for all debt

Partnership

-Cheap, simple,

-Encounter to difficulties for owner in case

independent on setting

of overwork

up the company

-Loss business during sole traders

-Profits are distributed

absence from business

to owners
-Large potential

-Complex and expensive to set up, legal

membership provide

controls on management

capital and resources.

-More demand by dividends from

Limited

-Profits are distributed

shareholders

company

for shareholders
-Management can be
made the responsibility
of expert managers

Both of two type of business have two sides: positive and negative with Dong
Kuang so base on the income statement and companys expenditure, Kuang should
organize limited company which help Kuang easily in cash flow. Moreover, with high
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expenditure for companys activities, Kuang will find difficult to raise the capital when
Kuang lack a half the capital. As a result of estimating the income of company, Kuang
will have more opportunity to enhance their market with investing of shareholders.
I.2. The implications of different sources to Dong Kuang:

Corporation tax is taxes company have to pay with profit earned by company.
With sole traders or partnership, they only pay personal income tax instead of paying
corporation tax. In the case of Kuang company, this company will reduce corporation
tax because of Kuangs bank loan. Actually, base on profit earned in Dong Kuang
company, Kuang have to comply with laws by paying tax normally. However, in the case
of Kuang when company lend of bank to raise capital and have to pay interest for this
bank loan monthly, Kuang are allowed to minus the interest of bank loan from net profit
before account for income tax in company. Besides, Kuang have to pay the VAT for
their business.
It is possible that Kuang can lack of capital when he is running company and one
of the ways he chooses to obtain funds is issuing debt and equity share. Issuing debts
usually buy from the certain individual and Kuang has to pay interest base on the
amount of borrowing. Issuing debts divide into two type: secured loans and unsecured
loan. With secured-loan, Kuang has to give the detail of assets and in the case
company do not pay for lender, companys assets belong to the lenders. However, it is
necessary for unsecured-loan to list the assets and higher interest. If Kuang are unable
to pay this loan, lenders will buy company base on companys financial position. It is
irrefutable that, as a result of issuing debts, Kuang do not pay tax in this debt without
being out of control in company. Moreover, the interest are fixed so Kuang finds easy to
manage budget of payments and Kuang is not obligated to pay debt as long as its
operate. Besides, equity share are bought from certain individual with categories:
ordinary share and preference share. When buying ordinary share, investors only
receive dividends in the case company makes profits and discharges all financial
obligations but investors have individuals rights in company such as voting. Preference
shares put in safer by specific interest that is paid periodically without depend on
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companys profit. If the equity is larger than the debts, company is out of control
gradually by the shareholders but if the equity is less than the debts, company have to
pay more interest and Kuangs profit is decreasing by running business. In brief, Kuang
use flexible two factors to keep balance in the developing company.
Dong Kuang company can issue new shares that include ordinary shares and
preference shares to raise capital. With ordinary share, only after issuing new ordinary
shares does Kuang gradually loss the control in the company because of decreasing
investors by adding new shareholders. All shareholders have rights of voting in
company. Due to issuing new shares, the value of each share can be decreased when
shareholders receive dividends that profits are divided equally into shares and Kuang
only pays dividends when company makes profits. Regarding to preference shares, the
positive sides when adding this type may unchanged the control in company. It means,
the holders have no voting rights in company but Kuang has responsibility with paying
fixed interest for each preference shares periodically. Equally important, Kuang can
issued preference shares in redeemable form in the case of profits are insufficient to
holders and Kuang can repurchase this shares. Two type of shares bring advantages
and disadvantages for Kuang so if Kuang decided to add new share, company should
determine how many shares to issue to reduce the lowest risky in the company.
It is irrefutable that becoming a Limited company, Kuang has some changes in
paying corporate tax. Similar to company, corporate tax in Kuang as Limited company
are minus the interest of bank loan before account income tax in company with paying
VAT. In addition, Kuang comply with laws with paying interest for dividends.
If Kuang have to pay more interest on debt than ordinary dividends, his business
are decreasing and no have profits with business. By contrast, the ordinary dividends
that company have to pay for shareholders is larger than the interest in debts its mean
company is developing and increasing profits by running business bit it is likely that
Kuang is out of control of business.
I.3. The appropriate sources of finance for each expansion stage ad making
recommendations on the best way of raising finance at each stage:

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Sources of finance

Business

Government aid

owners

Borrowing

Ownership

from the bank

capital

Advantag -limitation in
es

their saving
but it is
enough for

no

small business
Sole

-to be

trader/

available

partners

Disadvan

-hip

tages

-repaid a
reasonable
time
-pay interest
no

-Evaluate
CAMPRI
aspects
before
lending

Advantag -available
es

-Grant cash

-raise

(free money)

money

-bank loan with

without

lower interest by

putting in

government

danger of

guaranteed than

individual

normal
Private

Disadvan

limited

tages

compan
y

-limitation and

-government

-repaid a

-give up

it is not

evaluate

reasonable

certain

enough for

successful

time

control of

large company

business and

-pay interest

company

contribute to

-Evaluate

-share the

countrys

CAMPRI

profit with

13

economy

aspects

-actually, it is

before

difficult to raise

lending

them

money to this
source
Advantag -Available

Grant cash (free

-raise

money)

money

limited

-bank loan with

without

compan

lower interest by

putting in

government

danger of

guaranteed than

individual

Public

es

nor
Disadvan
tages

-Limitation and

government

-repaid a

-give up

it is not

evaluate

reasonable

certain

enough for

successful

time

control of

large company

business and

-pay interest

company

contribute to

-Evaluate

-share the

countrys

CAMPRI

profit with

economy

aspects

them

before
lending

All the source of finance have positive and negative sides so company have to
make decision before raising money from this source when opening a company.
Besides this, all the source are mentioned above can use in the case expand the
company and company can use some method below:
- Issued share capital: it can be issued for shareholders and have been
repurchased by the company. It is possible that by issuing share capital, company can
raise capital easily, reduce less debt without paying interest. However, company must

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share profits for investors and be out of control in company because of shareholders.
This method only use for public limited company.
-Retained profits and other reserves: its profits which business have kept in
company to remain business or enhance their business( instead of paying out for
shareholders as dividends such a public limited company)
Company want to become limited company from sole traders or partnership, they
have to prepare file accounts which will be public company yearly. Source of finance as
a lifeblood to run business so company have to flexible to raise capital. Both sides of
methods are shown above so company have to consider before using methods for their
business.
II.

The implications of finance as a resource within a business:

II.1. The cost of difference sources of finance for Kuang should his enterprise
becomes Limited:

When Kuang becomes limited company, he has to care about the long-term costs of
finance and medium-term costs of finance. With long-term costs of finance, Kuang has
some debts like preference shares, ordinary shares, debentures, government grants,
loan and retained of earning. The costs are shown below:
-Debentures: are amount of loaned to a company (BPP Professional
Education,2004, p.35). With this debts, Kuang have to pay interest which was listed in
debentures forms and the interest are minus before taxation. However, Kuang has to
pay interest whenever Kuang does not make profits and the lenders have the right to
carry assets in the case of being not repaid
-Preference shares: Kuang has to pay fixed dividends in the period when before
paying for ordinary shareholders.
-Ordinary shares: the last payment dividends are received by shareholders after the
salary of employees, suppliers, etc and shareholders only receive these dividends that
divide equally into shares when Kuang makes profits.
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-Government grants: if Kuang has pay this debt, the low interest are paid for
government.
-Retained of earning: Kuang can keeps profits without paying for ordinary
shareholders for businesss purpose such as buy new raw-material, machinery,
equipments, etc
-Loan: although Kuang does not compel pay all this debts, the interest rate are paid
monthly which comply with rules of the bank.
Kuang has to pay all the costs of finance for sources to maintain business so
Kuang build up the strategies to pay these debts on time without affecting on running
business.
II.2. The importance of financial planning to Kuang:
Financial planning play crucial role in establishing and developing in Kuangs
business to make sure the management his business sufficiently and suitable
investments policy.
-

Kuang can determine the inflow and outflow cash in running business to keep
balance in companys finance.

The planning help Kuang know the ability to widen their business and the
expansion strategies of company.

Using this plan, Kuang calculate all the loans such as interest from bank
loans, dividends, tax etc that Kuang has to pay in the direct time and have
schedule to pay on time

Kuang can estimate the profits of company and have some campaigns for
business if company loss in running business with basing on financial
planning.

I.3. The information needs of different decision makers:

16

The financial statement play important role with the decision makers in company.
Base on information of financial statement, the decision makers can decide for company
activities. Each decision maker need these information with different purpose:
-Owners and Managers: they use information for day by day running business and give
it for shareholders as a report.
-Shareholders: information update on financial statement that investors can check their
investors are right or wrong and they can invest more money for company if company
make profits efficiently or investors can withdrawal if the failure trend of company.
-Lenders: they use information to make sure the security on paying interest rate of
company before lending.
-Suppliers: financial statement provide information that is useful for suppliers to ensure
the payment of invoices and do not put in danger of bad debt.
-Government: the taxation of company are followed by financial statement
-Investors: they see the report that they should put money for company
II.4. The impact of finance on the financial statements to Kuang:

Assuming that the depreciation with machine in the period of 10 years so the cost
of depreciation = 20,000/10= 2,000

Sales
Purchase

1,215,000

820,000

Gross profit

395,000

Less expenses
Bank charged

4,500

Advertising

9,650

Insurance

4,560

Overheads

13,600
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Drawings

36,000

Business rate

6,960

Wages

192,000

Rent

30,800

Depreciation

2,000
(300,070)

Profit and loss

94,930

Because of the competition in the market , Dong Kuang estimate reduce sales
10% from June to December, the profit and loss estimate to be changed below:

Sales

1,132,750

Purchase

820,000

Gross profit

312,750

Less expenses
Bank charged

4,500

Advertising

9,650

Insurance

4,560

Overheads

13,600

Drawings

36,000

Business rate

6,960

Wages

192,000

Rent

30,800

Depreciation

2,000
(300,070)

Profit and loss

12,680

Before reduce 10% sales the ratio of Profit/ sales= 94930/121500= 7,8%
After reduce 10% sales the ratio of profit/ sales= 12680/1132750= 1,19%
18

As can be see the profit and loss above, after reducing 10% sale, the profit
reduce 6,6% and Kuang make less profit than normal which affect the time of paying
interest rate for bank and the expense. It is possible that Kuang can have to lend more
money to maintain their business due to being lower profit.
The inflows and outflows of Kuang:

Cash inflows
Received from sales

1,215,000

VAT

121,625

Saving

11,000

Bank

9,000

Total cash inflows

1,447,625

Cash outflows
Purchases

820,000

VAT

143,500

Machine investment

20,000

Bank charged

4,500

Advertising

9,650

Insurance

4,560

Overheads

13,600

Drawings

36,000

Business rate

6,960

Wages

192,000

Rent

30,800

Total cash outflows

1,281,570

Net cash flow operation

166,055

Cash flow need for operating company for fixed assets and variable expenses.
By using cash flow, Kuang can know the main sources of capital and the expense for
19

his business. As can be seen to Kuangs cash flow, the cash inflow is too less which are
difficult for Kuang to expand their business and it is possible that the net cash flow
operation can decrease if the sales decrease. To solve these issues, Kuang has find
more sources of cash inflow to make his business stronger.
Working capital plays important role of running business from liquidity to
profitability so working capital should be managed efficiently. One of results of being
insufficient working capital is overtrading. It means that company have no enough longterm capital to support for their business and Kuang is no have capital to running
business. To deal with the overtrading, Kuang should control the growth rate by
increasing selling price not only to increase profits but also decrease the demand.
Besides, Kuang should control debt effectively to pay debt on time and pay salaries for
staffs.

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CONCLUSION

This report give detail the information the assessment for financial resources for
Dong Kuang company which is helpful to choose the suitable type business to open a
business. Beside, basing on the report, Kuang can look for their problem which estimate
on running business like overtrading, excessive borrowing to build up strategies for
these problems which can lead to bankrupt for Dong Kuang company. Kuang can
control their working capital efficiently . With the financial planning, Dong Kuang can
specific view of company in the near future to can manage his business efficiently and
he can enhance his business stronger. Financial statement is helpful for internal like
managers, owners, staffs, stakeholders, etc and external decision makers like
government, suppliers ,etc.

21

References
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2013].
2.Biteglobal.com (n.d.) Bite. [online] Available at: http://www.biteglobal.com/ [Accessed:
24 Apr 2013].
3.Ltdcompany.co.uk (2013) Limited Company Tax Rates and Advantages. About Ltd
Company Tax. [online] Available at: http://www.ltdcompany.co.uk/companyformation/ltd-company-tax/ [Accessed: 24 Apr 2013].
4.Managementstudyguide.com (2008) Financial Planning - Definition, Objectives and
Importance. [online] Available at: http://www.managementstudyguide.com/financialplanning.htm [Accessed: 24 Apr 2013].
5.Raghavendra, P. (2000) Comparison of Issue Debt vs. Equity. [online] Available at:
http://www.ehow.com/about_7593181_comparison-issue-debt-vs-equity.html
[Accessed: 24 Apr 2013].
6.Unknown. (2013) Untitled. [online] Available at: http://ezinearticles.com/?FinancialStatement---Who-Needs-It?&id=4560649 [Accessed: 24 Apr 2013].

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