2010.Dec.ACCA.P3_revision_mock_cover_pages

ACCAPape r F4 (ENG)Corporat e an d Busines s La wRevisio n Cours e Moc k Examinatio n Jun e 2010 Questio n Pape rAL L question s ar e compulsor y an d MUS T b e attempte dTim e Allowe d 15 minute s Readin g an d plannin g 3 hour s Writin gD O NO T OPE N THI S PAPE R UNTI L YO U AR E READ Y T O STAR T UNDE REXAMINATIO N CONDITION S©Debbi e Crossman, Apri l 2010 Al l right s reserved. N o par t o f thi s publicatio n ma y b e reproduced, store d i n aretrieval system, or transmitted, in any form or by any means, electronic,mechanical, photocopying, recording or otherwise, without the prior writtenpermissio n o f Debbi e Crossman.AL L TE N question s ar e compulsor y an d MUS T b e attempte d1 (a) Explai n th e jurisdictio n o f th e Count y Cour t and th e Hig h Cour t i n th e syste m o fcivi l justice. (8 marks)(b) Briefl y explai n wher e appeal s fro m th e decision s o f th e Count y Cour t an d th e Hig hCour t ar e heard. (2 marks)(10 marks)2 (a) Distinguis h betwee n a condition, a warrant y an d a n innominat e term. (5 marks)(b) Explai n th e practica limportanc e o f th e distinction. (5marks) (10 marks)3 I n relatio n t o th e dismissa l o f a n employee, explain:(a) th e ground s o n whic h dismissa l ma y b e fair; (5 marks)(b) th e ground s o n whic h dismissa l wil l b e automaticall y unfair.(5 marks)(10 marks)4 Explai n th e concep t o f ‘dut y o f care’i n th e contex t o f professiona l negligence.(10 marks)5 Explai n th e following i n relatio n t o compan y law:(a) promoter; (5 marks)(b) th e trading certificate. (5 marks) (10 marks)6 I n th e contex t o f corporat e governanc e explai n th e rol e o f th e compan y secretar y o f apubli c company, paying particula r attentio n to:(a) hi s appointment; (4 marks)(b) hi s duties; (2 marks)(c) hi s powe r t o bin d th e compan y i n contract. (4 marks) (10 marks)7 I n relatio n t o compan y la w and, wher e relevant, th e Combined Cod e o n Corporat eGovernanc e explain:(a) th e meaning o f director; (2 marks)(b) th e meaning o f shado w director; (3 marks)(c) th e rol e o f nonexecutiv e director; (3 marks)(d) th e rol e o f executiv e director. (2 marks) (10 marks)8 Angi e advertise d a photocopie r i n a trad e journa l fo r £15,000. Bett y wrot e t o Angi eofferin g t o bu y i t fo r £10,000. Angi e replie d b y retur n o f pos t sayin g sh e woul d accep t £13,000. Whe n sh e hear d nothin g furthe r fro m Betty, Angi e wrot e agai n sayin g sh e woul d accep t £10,000. Bett y say s sh e n o longe r want s t o bu y th e photocopier.Angi e wrot e t o Caro l offerin g fo r sal e a lapto p fo r £500. Th e mornin g tha t sh e receive d th e lette r Caro l wrot e t o Angi e agreein g t o bu y a t th e askin g price. Afte r sh e ha d poste d th e letter, bu t befor e i t wa s delivered, Caro l change d he r min d an d sen t Angi e a fa x askin g he r t o ignor e th e lette r whe n i t arrived.Required:Advis e Angi e a s t o whethe r bindin g contract s exis t betwee n hersel f and:(a) Betty; (6 marks)(b) Carol. (4 marks) (10 marks)9 I n 1998 Ed, Fahi m an d Gig i se t u p busines s i n partnership. The y ar e no w considerin gincorporatin g thei r busines s a s a privat e limite d compan y i n whic h the y wil l b e th e onl y shareholder s an d directors.Required:(a) Advis e the m wha t advantage s wil l accru e fro m incorporatio n a s a privat e limite d company. (8 marks)(b) Woul d ther e b e an y furthe r advantage s i f the y wer e instead t o for m alimited liabilit y partnership? (2 marks)(10 marks)10 Hop e own s 10,000 ordinar y £1 share s i n Indee p Ltd, whic h sh e purchase d i n 2000. A t th e tim e sh e wa sallotte d th e share s sh e wa s onl y calle d upo n t o pa y 75p pe r share. N o furthe r call s hav e ye t bee n made.I n 2004 Hop e mad e a loa n o f £10,000 t o th e compan y t o financ e furthe r expansio n o f th e business. Th edebentur e wa s secure d b y wa y o f a fixe d charg e o n th e company’s freehol d warehous e premises. Th e followin g year, 2005, sh e als o mad e a furthe r loa n o f £2,000 an d thi s tim e th e debentur e wa s secure d b y wa y o f floatin g charg e ove r th e company’s stoc k i n trade. B y a n oversight, thi s charg e wa s no t registere da t Companie s House.I n 2009 th e compan y realise d tha t i t neede d furthe r funds. S o i n orde r t o persuad e Hop e t o provid e th eneede d mone y i t tol d he r tha t i t woul d issu e he r 10,000 mor e £1 shares, full y paid, bu t sh e nee d onl y pa y50 penc e pe r share. Hop e agree d t o thi s an d too k th e shares.Unfortunatel y th e injectio n o f cas h di d no t sav e Indee p Lt d an d i t recentl y wen t int o insolven t liquidation.Required:Advis e Hop e a s t o he r right s and liabilitie s i n respec t o f he r share san d he r debentures. (10 marks)。

Professional Level – Essentials Module The Association of Chartered Certifi ed Accountants Business AnalysisWednesday 15 December 2010Time allowedReading and planning: 15 minutesWriting: 3 hoursThis paper is divided into two sections:Section A – This ONE question is compulsory and MUST be attemptedSection B – TWO questions ONLY to be attemptedDo NOT open this paper until instructed by the supervisor.During reading and planning time only the question paper maybe annotated. You must NOT write in your answer booklet untilinstructed by the supervisor.This question paper must not be removed from the examination hall.P a p e r P 3This is a blank page.The question paper begins on page 3.2Section A – This ONE question is compulsory and MUST be attemptedThe following information should be used when attempting question 11IntroductionShoal plc is a well-known corporate organisation in the fi sh industry. It owns 14 companies concerned with fi shing and related industries.This scenario focuses on three of these companies:ShoalFish Ltd – a fi shing fl eet operating in the western oceansShoalPro Ltd – a company concerned with processing and canning fi shShoalFarm Ltd – a company with saltwater fi sh farms.Shoal plc is also fi nalising the purchase of the Captain Haddock chain of fi sh restaurants.ShoalFishShoal plc formed ShoalFish in 2002 when it bought three small fi shing fl eets and consolidated them into one fl eet.The primary objective of the acquisition was to secure supplies for ShoalPro. 40% of the fish caught by ShoalFish are currently processed in the ShoalPro factories. The rest are sold in wholesale fi sh markets. ShoalFish has recorded modest profits sinc e its formation but it is operating in a c hallenging market-plac e. The western oc eans where it operates have suffered from many years of over-fishing and the government has rec ently introduc ed quotas in an attempt to conserve fi sh stocks.ShoalFish has 35 boats and this makes it the sixth largest fl eet in the western oceans. Almost half of the total number of boats operating in the western oceans are individually owned and independently operated by the boat’s captain.Recent information for ShoalFish is given in Figure 1.ShoalProShoalPro was acquired in 1992 when Shoal plc bought the assets of the T revarez Canning and Processing Company.Just after the ac quisition of the c ompany, the government dec lared the area around T revarez a ‘zone of industrial assistance’. Grants were made available to develop industry in an attempt to address the economic decline and high unemployment of the area. ShoalPro benefited from these grants, developing a major fish processing and canning capability in the area. However, despite this initiative and investment, unemployment in the area still remains above the average for the country as a whole.ShoalPro’s modern fac ilities and relatively low c osts have made it attrac tive to many fishing c ompanies. The fish received from ShoalFish now accounts for a declining percentage of the total amount of fi sh processed and canned in its factories in the T revarez area. Recent information for ShoalPro is given in Figure 1.ShoalFarmShoalFarm was acquired in 2004 as a response by Shoal plc to the declining fi sh stocks in the western oceans. It owns and operates saltwater fish farms. These are in areas of the ocean close to land where fish are protected from both fi shermen and natural prey, such as sea birds. Fish stocks can be built up quickly and then harvested by the fi sh farm owner. Shoal plc originally saw this acquisition as a way of maintaining supply to ShoalPro.Operating costs at ShoalFarm have been higher than expected and securing areas for new fi sh farms has been diffi cult and has required greater investment than expected. Recent information for ShoalFarm is given in Figure 1.3[P.T.O.All fi gures in $mShoalFish 2007 2008 2009T urnover of market sector 200·00 198·50 190·00T urnover of ShoalFish 24·00 23·50 21·50profit 1·20 1·10 1·05GrossShoalPro 2007 2008 2009T urnover of market sector 40·00 40·10 40·80T urnover of ShoalPro 16·00 16·20 16·50Grossprofit 1·60 1·65 1·75ShoalFarm 2007 2008 2009T urnover of market sector 10·00 11·00 12·00T urnover of ShoalFarm 1·00 1·10 1·12profit 0·14 0·14 0·15GrossFigure 1: Financial data on individual companies 2007–2009Captain HaddockThe Captain Haddock chain of restaurants was founded in 1992 by John Dory. It currently operates one hundred and thirty restaurants in the country serving high quality fi sh meals. Much of Captain Haddock’s success has been built on the quality of its food and service. Captain Haddock has a tradition of recruiting staff directly from schools and universities and providing them with excellent training in the Captain Haddock academy. The academy ensures that employees are aware of the ‘Captain Haddock way’ and is dedicated to the continuation of the quality service and practices developed by John Dory when he launched the fi rst restaurant. All management posts are fi lled by recruiting from within the company, and all members of the Captain Haddock board originally joined the company as trainees. In 1999 the Prime Minister of the country identifi ed Captain Haddock academy as an example of high quality in-service training. In 2000, Captain Haddock became one of the thirty best regarded brands in the country.In the past few years, the fi nancial performance of Captain Haddock has declined signifi cantly (see Figure 2) and the company has had difficulty in meeting its bank covenants. This decline is partly due to economic recession in the country and partly due to a disastrous diversifi cation into commercial real estate and currency dealing. The chairman and managing director of the company both resigned nine months ago as a result of concern over the breaking of banking covenants and shareholder criticism of the diversification policy. Some of the real estate bought during this period is still owned by the company. In the last nine months the company has been run by an interim management team, whilst looking for prospective buyers. At restaurant level, employee performance still remains relatively good and the public still highly rate the brand. However, at a recent meeting one of the employee representatives called for a management that can ‘effectively lead employees who are increasingly demoralised by the decline of the company’. Shoal plc is currently fi nalising their takeover of the Captain Haddock business. The company is being bought for a notional $1 on the understanding that $15 million is invested into the company to meet short-term cash fl ow problems and to improve liquidity. Shoal plc’s assessment is that there is nothing fundamentally wrong with the company and that the current fi nancial situation is caused by the failed diversifi cation policy and the cost of fi nancing this. The gross profi t margin in the sector averages 10%.Captain Haddock currently buys its fi sh and fi sh products from wholesalers. It is the intention of Shoal plc to look at sourcing most of the dishes and ingredients from its own companies; specifi cally ShoalFish, ShoalPro and ShoalFarm. Once the takeover is complete (and this should be within the next month), Shoal plc intends to implement signifi cant strategic change at Captain Haddock so that it can return to profi tability as soon as possible. Shoal plc has implemented strategic change at a number of its acquisitions. The company explicitly recognises that there is no ‘one right way’ to manage change. It believes that the success of any planned change programme depends on an understanding of the context in which the change is taking place.Captain Haddock (all fi gures in $m)2007 2008 2009T urnover 115·00 114·50 114·00)Gross profi t (loss) 0·20 (5·10 ) (6·20Figure 2: Financial information for Captain Haddock 2007–20094Required:(a) In the context of Shoal plc’s corporate-level strategy, assess the contribution and performance of ShoalFish,ShoalPro and ShoalFarm. Your assessment should include an analysis of the position of each company in the Shoal plc portfolio. (15 marks)(b) Shoal plc explicitly recognises that there is no ‘one right way’ to manage change. It believes that the success ofany planned change programme will depend on a clear understanding of the context within which change will take place.(i) Identify and analyse, using an appropriate model, the contextual factors that will infl uence how strategicchange should be managed at Captain Haddock. (13 marks)Professional marks will be awarded in part (b)(i) for the identifi cation and justifi cation of an appropriatemodel.(2 marks)(ii) Once the acquisition is complete, Shoal plc wish to quickly turnaround Captain Haddock and return it to profi tability.Identify and analyse the main elements of strategic change required to achieve this goal. (8 marks)Professional marks will be awarded in part (b)(ii) for the cogency of the analysis and for the overallrelevance of the answer to the case study scenario.(2 marks)(c) Portfolio managers, synergy managers and parental developers are three corporate rationales for adding value.Explain each of these separate rationales for adding value and their relevance to understanding the overall corporate rationale of Shoal plc. (10 marks)(50 marks)5[P.T.O.Section B – TWO questions ONLY to be attempted2IntroductionTMP (The Management Press) is a specialist business publisher; commissioning, printing and distributing books on fi nancial and business management. It is based in a small town in Arcadia, a high-cost economy, where their printing works were established fi fty years ago. 60% of the company’s sales are made through bookshops in Arcadia. In these bookshops TMP’s books are displayed in a custom-built display case specifically designed for TMP. 30% of TMP’s sales are through mail order generated by full-page display advertisements in magazines and journals. Most of these sales are to customers based outside Arcadia. The fi nal 10% of sales are made through a newly established website which offers a restricted range of books. These books are typically very specialised and are rarely featured in display advertising or stocked by general bookshops. The books available on the website are selected to avoid conflict with established supply channels. Most of the online sales are to customers based in Arcadia. High selling prices and high distribution costs makes TMP’s books expensive to buy outside Arcadia.Business changesIn the last decade costs have increased as the raw materials (particularly timber) used in book production have become dearer. Paper is extremely expensive in Arcadia and the trees used to produce it are becoming scarcer. Online book sellers have also emerged who are able to discount prices by exploiting economies of scale and eliminating bookshop costs. In Arcadia, it is estimated that three bookshops go out of business every week. Furthermore, the infl uential journal ‘Management Focus’, one of the journals where TMP advertised their books, also recently ceased production. TMP itself has suffered three years of declining sales and profi ts. Expenditure on marketing has been reduced signifi cantly in this period and further reductions in the marketing budget are likely because of the weak fi nancial position of the company.Overall, there is increasing pressure on the company to increase profi t margins and sales.Despite the poor fi nancial results, the directors of TMP are keen to maintain the established supply channels. One of them, the son of the founder of the company, has stated that ‘bookshops need all the help they can get and management journals are the heart of our industry’.However, the marketing director is keen for the company to re-visit its business model. He increasingly believes that TMP’s conventional approach to book production, distribution and marketing is not sustainable. He wishes to re-examine certain elements of the marketing mix in the context of the opportunities offered by e-business.A young marketing graduate has been appointed by the marketing director to develop and maintain the website.However, further development of the website has not been sanctioned by the Board. Other directors have given two main reasons for blocking further development of this site. Firstly, they believe that the company does not have suffi cient expertise to continue developing and maintaining its own website. It is solely dependent on the marketing graduate. Secondly, they feel that the website will compete with the established supply channels which they are keen to preserve.However, the marketing director is convinced that investing in e-business is essential for the survival of TMP. ‘We need to consider what unique opportunities it offers for pricing the product, promoting the product, placing the product and providing physical evidence of the quality of the product. Finally, we might even re-defi ne the product itself’. He feels if the company fails to grasp these opportunities, then one of its competitors will, and ‘that will be the end of us’.Required:(a) Determine the main drivers for the adoption of e-business at TMP and identify potential barriers to itsadoption. (5 marks)(b) Evaluate how e-business might help TMP exploit each of the five elements of the marketing mix (price,product, promotion, place and physical evidence) identifi ed by the marketing director. (20 marks)(25 marks)6Frigate Limited is based in the country of Egdon. It imports electrical components from other countries and distributes them throughout the domestic market. The company was formed twenty years ago by Ron Frew, who now owns 80% of the shares. A further 10% of the company is owned by his wife and 5% each by his two daughters.Although he has never been in the navy, Ron is obsessed by ships, sailing and naval history. He is known to everyone as ‘The Commander’ and this is how he expects his employees to address him. He increasingly spends time on his own boat, an expensive motor cruiser, which is moored in the local harbour twenty minutes drive away. When he is not on holiday, Ron is always at work at 8.00 am in the morning to make sure that employees arrive on time and he is also there at 5.30 pm to ensure that they do not leave early. However, he spends large parts of the working day on his boat, although he can be contacted by mobile telephone. Employees who arrive late for work have to immediately explain the circumstances to Ron. If he feels that the explanation is unacceptable then he makes an appropriate deduction from their wages. Wages, like all costs in the company, are closely monitored by Ron.Employees, customers and suppliersFrigate currently has 25 employees primarily undertaking sales, warehousing, accounts and administration. Although employees are nominally allocated to one role, they are required to work anywhere in the company as required by Ron.They are also expected to help Ron in personal tasks, such as booking holidays for his family, fi lling in his personal tax returns and organising social events.Egdon has laws concerning minimum wages and holidays. All employees at Frigate Ltd are only given the minimum holiday allocation. They have to use this allocation not only for holidays but also for events such as visiting the doctor, attending funerals and dealing with domestic problems and emergencies. Ron is particularly infl exible about holidays and work hours. He has even turned down requests for unpaid leave. In contrast, Ron is often away from work for long periods, sailing in various parts of the world.Ron is increasingly critical of suppliers (‘trying to sell me inferior quality goods for higher prices’), customers (‘moaning about prices and paying later and later’) and society in general (‘a period working in the navy would do everyone good’). He has also been in dispute with the tax authority who he accused of squandering his ‘hard-earned’ money.An investigation by the tax authority led to him being fi ned for not disclosing the fact that signifi cant family expenditure (such as a holiday for his daughters overseas) had been declared as company expenditure.Company accountantIt was this action by the tax authority that prompted Ron to appoint Ann Li as company accountant. Ann had previously worked as an accountant in a number of public sector organisations, culminating in a role as a compliance offi cer in the tax authority itself. Ron felt that ‘recruiting someone like Ann should help keep the tax authorities happy. After all, she is one of them’.Ann was used to working in organisations which had formal organisational hierarchies, specialised roles and formal controls and systems. She tried to install such formal arrangements within Frigate. As she said to Ron ‘we cannot have everyone working as if they were just your personal assistants. We need structure, standardised processes and accountability’. Ron resisted her plans, at fi rst through delaying tactics and then through explicit opposition, tearing up her proposed organisational chart and budget in front of other employees. ‘I regret the day I ever made that appointment’, he said. After six months he terminated her contract. Ann returned to the tax authority as a tax inspector.Required:The cultural web allows the business analyst to explore ‘the way things are done around here’.(a) Analyse Frigate Ltd using the cultural web or any other appropriate framework for understanding organisationalculture. (15 marks)(b) U sing appropriate organisation configuration stereotypes identified by Henry Mintzberg, explain how anunderstanding of organisation configuration could have helped predict the failure of Ann Li’s proposed formalisation of structure, controls and processes at Frigate Ltd. (10 marks)(25 marks)7[P.T.O.The Institute of Administrative Accountants (IAA) has a professional scheme of examinations leading to certifi cation.The scheme consists of six examinations (three foundation and three advanced) all of which are currently assessed using conventional paper-based, written examinations. The majority of the candidates are at the foundation level and they currently account for 70% of the IAA’s venue and invigilation costs.There are two examination sittings per year and these sittings are held in 320 centres all over the world. Each centre is administered by a paid invigilation team who give out the examination paper, monitor the conduct of the examination and take in completed scripts at the end. Invigilators are also responsible for validating the identity of candidates who must bring along appropriate identifi cation documents. At over half of the centres there are usually less than ten candidates taking the foundation level examination and no candidates at all at the advanced level. However, the IAA strives to be a world-wide examination body and so continues to run examinations at these centres, even though they make a fi nancial loss at these centres by doing so.Recent increases in invigilation costs have made the situation even worse. However, the principles of equality and access are important to the IAA and the IAA would like to increase the availability of their examinations, not reduce it. Furthermore, the IAA is under increased fi nancial pressure. The twice-yearly examination schedule creates peaks and troughs in cash fl ow which the Institute fi nds increasingly hard to manage. The Institute uses its $5m loan and overdraft facility for at least four months every year and incurred bank charges of $350,000 in the last fi nancial year.ExaminationsAll examinations are set in English by contracted examiners who are paid for each examination they write. All examinations are three-hour, closed-book examinations marked by contracted markers at $10 per script. Invigilators send completed scripts directly to markers by courier. Once scripts have been marked they are sent (again by courier) to a centralised IAA checking team who check the arithmetic accuracy of the marking. Any marking errors are resolved by the examiner. Once all marks have been verified, the examination results are released. This usually takes place16 weeks after the examination date and candidates are critical of this long delay. The arithmetic checking of scriptsand the production of examination results places signifi cant demands on IAA full-time administrative staff, with many being asked to work unpaid overtime. The IAA also employs a signifi cant number of temporary staff during the results processing period.E-assessmentThe new head of education at the IAA has suggested e-assessment initiatives at both the foundation and advanced levels.He has suggested that all foundation level examinations should be assessed by multiple-choice examinations delivered over the Internet. They can be sat anytime, anyday, anywhere. ‘Candidates can sit these examinations at home or at college. Anywhere where there is a personal computer and a reliable broadband connection.’Advanced-level examinations will continue to be held twice-yearly at designated examination centres. However, candidates will be provided with personal computers which they will use to type in their answers. These answers will then be electronically sent to markers who will use online marking software to mark these answers on the screen.The software also has arithmetic checking facilities that mean that marks are automatically totalled for each question.‘100% arithmetic accuracy of marking is guaranteed.’He has also suggested that there is no need to make a formal business case for the adoption of the new technology.‘Its justifi cation is so self-evident that defi ning a business case, managing benefi ts and undertaking benefi ts realisation would just be a pointless exercise. It would slow us down at a time when we need to speed up.’Required:(a) Evaluate the perceived benefi ts and costs of adopting e-assessment at the IAA. (15 marks)(b) Explain why establishing a business case, managing benefi ts and undertaking benefi ts realisation are essentialrequirements despite the claimed ‘self-evident’ justifi cation of adopting e-assessment at the IAA.(10 marks)(25 marks)End of Question Paper8。

ACCA P32010June Q3(a)Evaluate the potential benefi ts to the city authority and its IT employees,of outsourcing IT to ProTech-Public.The scenario suggests a number of reasons why outsourcing should be benefi cial to the city authority.本题中提高一系列为什么外包对于城市治理有好处。

Firstly,over the last decade there have been fl uctuations in demand for IT staff.The authority has recruited to meet short-term demand but,because of the problems of shedding labour,the IT department has not proportionally contracted once that demand has passed.The implication is that,as a result,IT staff costs are higher than they should be.The outsourcing model provides a way of matching supply to demand.Employees are only brought in when there is a specifi c project for them to work on.首先，在过去十年，对IT员工的需求一直在波动。

管理局因为短期需求聘用了人员，但是因为裁员问题，IT部门不能在需求之后解雇员工。

Professional Level – Essentials Module, Paper P3Business Analysis June 2011 Answers 1(a)An external environmental analysis considers political, economic, socio-cultural, technological, legal and environmental (ecological) forces that affect EcoCar.Although it was external environmental factors that prompted Professor Jacques to develop the original EcoCar, it is primarily socio-cultural forces that are determining its current sales. There have to be customers prepared to pay a premium price for environmentally friendly cars, whose conventional rivals are $2,000 cheaper, and are faster with better acceleration. These customers are prepared to pay this premium because they are concerned about the conventional car’s use of non-renewable resources (oil) and the effect of its carbon emissions on climate change. They are essentially ‘green’ consumers. It is easier to be such a consumer in a developed, growing economy where there is sufficient disposable income to be able to make such choices. Thus the economic health and disposable income of the country are important to EcoCar and should be monitored.Underpinning the green consumer market is the belief that environmental damage is caused by CO2emissions and thatpreserving natural resources for future generations is important. Any scientific evidence to the contrary could cause problemsfor the EcoCar, for example, if scientists discover that excess CO2is actually necessary for the planet’s survival. Similarly, ifpeople become increasingly pessimistic, less concerned about their children’s future or resigned to the belief that there is nothing they can do to avert catastrophe then their buying behaviour may become more self-centred and hedonistic, spending discretionary expenditure on more immediate personal, sensory pleasures. EcoCar need to monitor such trends. Individual people do really need to believe that they can make a difference to the world in which they, and their descendents, live in. T echnological innovation is at the heart of EcoCar and the company needs to monitor technological trends for at least two reasons. Firstly, for potential alternatives to lithium-ion batteries that could seriously affect the viability of their whole product. Alternatives do exist (hydrogen for example) and so EcoCar is aware that the potential application of alternative technologies must be monitored. Secondly, the company has to be on the look-out for improvements in lithium-ion batteries that could make them cheaper, lighter or more powerful.EcoCar has been the beneficiary of government policy which has been aimed at nurturing green technology by giving taxincentives, grants and interest-free loans. It has also placed heavy taxes on cars with high CO2emissions. Very importantly,it has also funded the development of 130 charging centres throughout the country where the EcoCar can be re-charged. The company needs to monitor the government’s continued commitment to energy saving and the policies of any political opposition within the country.Finally, the government has enacted a number of general laws on car safety that have to be complied with by EcoCar. Further legislation is expected, so the company must monitor this.Thus there are a number of threats that EcoCar has to consider, using its risk management approach discussed in part (c) of this question. There are also risks associated with the potential decline of the green consumer and the emergence of alternative technologies.The external industry analysis could use elements of Porter’s five forces framework. Deciding the appropriate scope of the industry to be considered is important. This helps determine the competition facing EcoCar, either from the car industry as a whole, the sector concerned with reduced emissions or perhaps transport as a whole.The technological environment is driving the threat of substitute products. This threat is relatively high in an industry (car manufacturing) where there is no clear successor to conventional petrol and diesel fuelled cars. A number of alternatives and hybrids are either available or under development. Furthermore, there may be a popular movement to ‘do without it’. Cheap, frequent, reliable, safe public transport could lead to lower demand for private cars and indeed may be a better choice for the green consumer. Cycling could also pose a threat, combining a non-polluting alternative with exercise addressing problems of obesity and associated health issues.In theory, the switching costs of the consumer are relatively low if the industry is perceived as the car industry as a whole. The consumer just purchases a different car. However, the EcoCar appeals to a segment of buyers who are prepared to pay a premium price for the ‘cleaner’ product. Although the cost of the product is relatively high, the buyer does not actively seek out cheaper alternatives. They know that these alternatives exist but they do not purchase them because of their green ideals. In a sense, the consumers do not wish to bargain for this product.There is an ever-present threat of new entrants into this market. However, there are considerable capital investment costs which EcoCar have overcome with the help of grants, and interest-free loans. These incentives are unlikely to be available in all countries, or even all regions of Erewhon, given that they are linked to tackling areas of high unemployment. Furthermore, the absence of local car-building expertise, together with the processes patented by Professor Jacques should deter entrants into the market. It is interesting to note that Universal Motors (the second largest car manufacturer in the world) has decided to enter this sector of car production through acquisition, rather than developing its own product. It has brought further capital investment, which may not be available to potential competitors.The bargaining power of suppliers in the industry is unclear from the case study. Certainly, it is normally difficult to switch suppliers in such an industry because of the nature of the product and the tightly linked supply chains of this industry. This is not a problem for the large car companies who are powerful and much larger than their supplier companies but it could be a problem for a small manufacturer such as EcoCar, which has little bargaining power. However, the ownership of Universal Motors might alter this. They should be able to negotiate favourable contracts with suppliers, reflecting a reduction in the bargaining power of these suppliers. If labour is seen as a supplier, the problem of skilled labour has meant that labourrates have had to be increased and it is this increase (together with the shortage of skilled labour) that has prompted Universal Motors to consider outsourcing the production of the EcoLite model.In the car industry as a whole there are many competing firms and buyers can switch easily from one to another. The industry has high fixed costs and the cost of leaving the industry is high. Thus competitive rivalry in the car industry is high. However, in EcoCar’s sector there are not as many competing firms and they tend to be fairly well differentiated. Thus competitive rivalry appears to be less in this sector than in the car marketplace as a whole. Whichever perspective is adopted, risks will be identified that need to be dealt with by the company’s risk management process.(b)In support of outsourcingThe economic argument for outsourcing the manufacture of the EcoLite is best made if the manufacturing of this model is viewed in isolation. The proposed outsourcing supplier has quoted a cost for manufacture of $3,500. This is $1,000 less than the variable cost of manufacturing the current car at Lags Lane. It is still $750 per car cheaper even when transport costs are taken into consideration. Supporting information is given in Figure 1.EcoLiteSelling price per car ($)6,999Variable cost per car ($)4,500Weekly demand (cars)6Production time per car (machine hrs)8Contribution2,499Contribution/machine hour312Production time (hours)48Figure 1: Information relevant to the outsourcing issueOne of the reasons for the high variable cost of the car is the high cost of labour and inbound logistics. All evidence suggests that these costs will continue to increase to reflect the shortage of skilled labour in the region (as more people retire) and the high cost of moving goods in the congested roads of Midshire. The high cost of the car means that the most profitable combination of products (see below) produces a relatively small margin. This must be of concern to Universal Motors.Overall, the Lags Lane site is unable to meet the weekly demand for EcoCar’s products. The weekly demand for the three-car range is currently 152 hours (see Figure 2) and so the company (with 112 hours of production capacity) cannot meet product demand. Outsourcing will allow EcoCar to meet the demand for their products as well as increasing overall profitability.The EcoLite has fewer parts in common with the two other cars. The EcoPlus is essentially a slightly more sophisticated car than the Eco and the delay when switching production from Eco to EcoPlus is probably relatively small. I n contrast, the EcoLite has only 70% of parts in common with the two other cars which suggests that it is the obvious candidate to switch to a different plant. Overhead costs at Lags Lane should be reduced as there is no need to build and stock sub-assemblies and parts which are only used in the EcoLite. It has been suggested that there will be a $1,250 reduction in weekly overhead costs at Lags Lane if the production of the EcoLite model is outsourced.Against outsourcingThe economic argument for outsourcing is weakened if the complete product range is considered.Eco EcoPlus EcoLiteSelling price per car ($)9,99912,9996,999Variable cost per car ($)7,00010,0004,500Weekly demand (cars)656Production time per car (machine hrs)9108Contribution2,9992,9992,499Contribution/machine hour333300312Production time (hours)545048Figure 2: Further information relevant to the outsourcing issueAt present the following production combination represents the best product mix with the limited resources. See Figure 2 for supporting information.Six Ecos consuming 54 hours of production contributing $17,994 (6 x $2,999)Six EcoLites consuming 48 hours of production contributing $14,994 (6 x $2,499)One EcoPlus consuming 10 hours of production contributing $2,999 (1 x $2,999)This total contribution of $35,987 per week exceeds the estimated $35,000 per week overhead cost.However, if the EcoLite model is made elsewhere, then the following combination of cars will be made at Lags Lane Six Ecos consuming 54 hours of production contributing $17,994 (6 x $2,999)Five EcoPlus consuming 50 hours of production contributing $14,995 (5 x $2,999)This total contribution of $32,989 is less than the forecast $33,750 per week overhead cost.There are also eight unused production hours. It is possible that the future of the Lags Lane production facility could be in doubt if the EcoLite model is outsourced.The issue of the capacity of Lags Lane could be addressed by becoming a seven-day week three-shift operation (pushing capacity up to 168 hours per week) which would also allow 16 hours for maintenance, given that total demand currently comes to 152 hours. Whether this maintenance time would be sufficient would have to be investigated. There still remains, however, the problem of finding skilled labour in the Midshire area.Universal Motors might expect political opposition to the proposed outsourcing of the car even if they maintained production of the remaining two cars. Regional and national grants have been given to the company to help develop and produce the car. It has meant that part of a skilled workforce has been kept on in an area of high unemployment, reducing social costs to the community. The feeling that it is the region’s car is reflected in its image and sales. Outsourcing might have a detrimental effect on sales. People who were buying it because it was, in part, some reflection of regional pride may now buy elsewhere.The motivation of the buyers really has to be considered in more depth. It is acknowledged that people pay a premium for this car because they wish to make a social statement. The car uses less energy, has lower emissions and provides employment in the country where it makes most of its sales. T aking away employment may mean that the car may no longer fit the social buying criteria of some of its customers. However, the realisation that non-renewable energy is being used to transport these cars back to Erewhon where 95% of all sales are made may be even more problematic. Buyers may no longer feel that it represents an ethical choice. Building the car in a country where labour costs are low and then transporting it long distances in ships and environmentally unfriendly car transporters may completely undermine the brand.(c)Answers to the three internal weaknesses are given below. However, other responses could be just as valid and appropriatecredit will be given.Lack of control and co-ordinationThe company needs to implement a comprehensive budgeting system. A rudimentary budgeting system appears to exist, focused on planning rather than co-ordination or monitoring.The scenario shows a lack of co-ordination between production, procurement, inventory and finance. Recently, car production was halted by lack of an important sub-assembly. This led to the emergency purchase of components and overtime working to minimise the delay in re-starting car production. This raised the cost of production and would have reduced the profit margin on finished vehicles. Furthermore, there is evidence that purchases of bought-in finished inventory items (superior quality seats) have been made at times when there was insufficient demand for them or the money available to pay for them.This led to short-term financing requirements at a premium interest rate to resolve a public row with a supplier. There is alsoa cost associated with storing unwanted inventory.What the company needs is a plan which co-ordinates all these activities. This is known as a budget. Budgets would be prepared for production, for raw materials and for bought-in finished goods. The latter two budgets would be linked to the trade payables budget, which in turn is linked to the cash budget. Budgets facilitate planned co-ordination between the departments and activities of the organisation. Because they require planning, budgets also promote forward thinking and should help identify any forthcoming problems. These problems can be tackled in a planned way, for example, putting finance in place, before being prompted to do so by potential legal action from a supplier. A longer planning timeframe should have also helped the company arrange such finance at a better rate.Finally, budgets facilitate control. Deviations from the plan can be spotted early and appropriate action taken. Ordering excessive components would have been identified as a major deviation from plan and senior management action could have been taken. There is evidence of a lack of proper control at EcoCar (for example, training costs) and budgets would have helped address this.Research and Development succession and learningThe company needs to consider the principles of Human Resource Development (HRD).Research and Development has been central to the success of EcoCar. However, Universal Motors have recognised that the senior managers are getting older and that there is no succession planning or development in this area of expertise.Furthermore, they have also identified that although the senior managers may be technically competent, their people management skills are limited, losing key graduates that they failed to motivate or recognise. There is a concern that new technological opportunities are not being recognised or exploited because of an inappropriate culture within R & D.EcoCar needs to completely re-think its approach to Human Resource Development (HRD) if it is to retain an intellectual lead in the industry. HRD is concerned with investing in the learning of people who work for the company, replacing concern about short-term training costs (as expressed about the graduate training scheme) with the vision of long-term training investment.As well as providing an internal pool of capable employees, proponents of this approach also argue that it engenders loyalty and commitment to the organisation, reducing staff turnover and all the costs associated with it. Consequently, it is a key approach to planning for staff succession from within.The strategic implications of such an approach should also not be overlooked. EcoCar is working in a challenging leading edge environment. Central to the concept of the learning organisation is the belief that adopting such a concept is one of the best ways of challenging and moving away from the current culture of the organisation. This is necessary at EcoCar. Overall,human resource development has the ‘prospect of unleashing the potential that lies within all people, allowing employees to contribute to and indeed transform strategy’ (Jeff Gold).The understanding of riskEcoCar needs to establish a risk management process that identifies and documents risks and put into place policies for eliminating, reducing or coping with them if they occur. In general, Universal Motors believe that EcoCar often recognise risks but do little about them except discuss them. Overall, it is concerned with the amount of risk that senior managers appear to take. Although individually the senior managers are risk averse, as a group they seem to seem to take increasingly riskier decisions as a way of overcoming their individual fears.In a risk management system risks would be identified and documented, usually on a risk register. Once they have been documented, risks need to be assessed, both for the probability of the risk occurring and for the impact it has if it does occur.Risk is also related to corporate governance. There is strong evidence to suggest that there is risk-related motivation for monitoring and improving corporate governance. EcoCar needs to consider the establishment of a main board risk committee.Revised corporate guidance, building on the T urnbull Report (FRC, 2005), states that companies ‘should, as a minimum, disclose that there is an ongoing process for identifying, evaluating and managing the significant risks faced by the company and that it is regularly reviewed by the board’.In general, there are four strategies for dealing with risk. Risk avoidance is concerned with removing the factors that give rise to the risk. In the context of EcoCar, the risk of adverse publicity due to poor performance in a rally could be avoided by not running a car in the rally. Risk transference is achieved by passing the risk on to someone else. There is a certain element of this in the outsourcing approach being considered by Universal Motors for the manufacturing of EcoLite. Risks associated with employing and fully utilising staff are passed on to the outsourcer. Risk reduction is concerned with reducing the chance of the risk occurring and is usually associated with a mitigation response which details what the organisation should do if the relevant event actually takes place. For example, the risk of employees passing on technical information about the company’s products could be reduced by strict contractual terms with deterrent penalties, reducing the chance of them actually passing on this information. The risk would be mitigated by immediate legal action against the employees and an action plan put in place with company’s lawyers. Finally, certain risks are just recognised and absorbed. The potential risk is recognised and accepted as part of doing business in that sector, but the risk is continually monitored.Risks are linked to the external factors identified in the first part of this question. For example, the risk of consumers losing interest in green issues affects the attractiveness of the industry to potential competitors.2(a)In the scenario, Barry Blunt commented on simple payback (and its supposed advantage over discounted cash flow), the selection of the discount rate, the role of the IRR, the importance of intangible benefits and the realisation of benefits. Each of these five themes is elaborated on below:Simple Payback calculation (time to payback)Job One All figures in $000C/F0–110–60–45–5Year0Year1Year2Year3Year4T otal costs11010101010T otal savings060255070Cumulative –110–60–45–555Job Two All figures in $000C/F0–90–50–35–5Year0Year1Year2Year3Year4T otal costs9020201010T otal savings060354035Cumulative–90–50–35–520Figure 1: Payback calculations for 8-HatsThe calculations (Figure 1) show that Barry Blunt’s assertion is not true, both jobs payback early in year 4. If payback (time to payback) had been used, Job One would probably still have been selected because it pays back more in Year 4 than Job 2.Barry also seems to misunderstand the limitations of payback. It ignores all cash flows beyond the payback period, which in longer projects can be very significant. In this example, payback ignores the fact that Job 1 has a significantly higher net cash flow inflow on year 4 than Job 2.The discount rateInflation is taken into account in setting the discount rate. However, interest forgone, the cost of capital (if money is being borrowed to fund the investment) and risk will also have an influence. Interest forgone is concerned with the opportunity cost of investing the money in a bank deposit account and earning interest. The cost of capital is concerned with the cost of borrowing money to fund investment. A risk premium would reflect the perceived risk associated with these two internal projects. The discount rate used will incorporate an allowance for risk which will determine the required rate of return or ‘hurdle rate’ that a project must exceed for it to be viable. Information about risk-free interest rates during the period, the riskprofile of the company and the company’s cost of capital (using the Capital Asset Pricing Model) would also have been of relevance.Even if there was an economic logic to changing the discount rate to 3% or 4% this would have no overall effect on the selection of the projects. In fact it is likely to have made Job 1 even more attractive than Job 2, as the cash flows in year 3 and 4 would have been discounted less. In fact, if a discount rate of 4% is used (and this calculation is not expected of the candidate) then the gap in NPV between Jobs 1 and 2 increases.The Internal Rate of return (IRR)The IRR is basically the discount rate that produces an NPV of zero for net project cash flows. If the selection is between two projects with the same scale of investment (which is the case here), then it has no effect on which project is selected. The project with the greatest NPV will usually produce the higher IRR. However, the IRR does become important when any project selected has to achieve a pre-specified company rate, or where projects with different scales of investment are being compared. This is not the case at 8-Hats.Tangible and intangible benefitsThe fundamental problem with investment appraisal generally is the reliability of cash flow estimates made for future cash inflows and outflows. For both jobs there seems to be an inclusion of specific monetary values for what appear to be intangible benefits – better information and improved staff morale. As Barry Blunt says, these are important, but it is very unlikely that either of these could be predicted with any certainty, particularly at the start of the project. Estimating for later time periods in the project is also very difficult and it is significant that these benefits increase as the project progresses. These intangible benefits amount to $110,000 for Job One and $50,000 for Job T wo. I f these intangible benefits are deducted from the analysis then, in fact, Job T wo has a higher NPV than Job One. However, both are negative, suggesting that neither project should be attempted.Benefits realisationFinally, Barry has a fundamental misunderstanding of benefits realisation. The feasibility study is concerned with establishing the business case of a project and it should identify the project’s benefits and costs. Benefits realisation is concerned with establishing whether the predicted benefits in the business case have been realised once the product or service delivered by the project has been in place for some time. It compares actual costs and benefits with those predicted in the business case.It cannot take place after the feasibility study of the project because at that point the project has not been completed and so any predicted benefits could not, at that stage, have been realised.(b)8-Hats Promotions are currently structured in functional departments, with each function representing activities of thecompany that have either been acquired (for example travel) or organically developed. Each job is passed between functions, with each function focusing on optimising its part of the transaction. Thus the sales department concentrates on winning the job by fiercely reducing prices because the sales managers are rewarded on turnover, not profit. The events department focuses on providing the most rewarding client experience and the travel department on selling travel options with the best profit margin. The focus of the travel department can cause conflict with the sales and marketing department and the operations department has the problem of trying to profitably deliver an event at a price agreed by sales and marketing department but with the functionality promised by the events department. The finance department has responsibility for managing the cash flow of the job and the payment of invoices and collection of money owing. There have been occasions where a job has been jeopardised by the failure of the company to pay key suppliers on time.The problems described above are typical of a functional structure and the ‘silo effect’ caused by departments sub-optimising based on their own objectives and interests. The job, which is effectively being passed across the silos, suffers due to lack of co-ordination. Conflicts between two silos can often only be dealt with by managers who are above the silos. There is an example in the scenario where Barry Blunt has to intervene to arrange extra funding to pay supplier invoices when those suppliers threaten to boycott a folk music festival.The matrix structure is an attempt to manage key elements of the company across the functional departments. This might bea product, project or a clearly defined client sector. In the context of 8-Hats it is jobs, which are effectively projects, andpotentially, key accounts (such as Kuizan) that need to be managed across the functional silos.Each job has the characteristics of a project. It has an established start, it runs for a few months, and then has a specified finish which is often the event itself (such as the folk festival or a Kuizan customer experience event). A multi-disciplinary project team drawn from all of the functional sections would allow continuity and focus on delivering a successful and profitable project. Because much of the company is project-based, a set of profitable projects should lead to a profitable company. Decisions within the project will, to some extent, reflect a consensus view of all concerned. The sales manager responsible for agreeing the deal would still be involved at event realisation and would also contribute to the management of cash flow through the complete project. This commitment to the project goal should lead to a more rewarding client experience. The need to keep clients satisfied is another potential element to the matrix, with account managers being appointed to key accounts with the responsibility of managing clients across both silos and projects.The need for project teams to reflect a consensus view often means that decisions may take longer in a matrix structure and tension within the multi-disciplinary team may lead to a large amount of conflict. This conflict is more likely when cost and profit responsibilities are either unclear or counter-productive. At 8-Hats, the practice of rewarding sales managers on a turnover basis will have to be reviewed, otherwise there will be significant tension between the line (function) and the project.It has also been claimed that job and task responsibilities are unclear in a matrix structure and so the company will have to。

ACCAPaper P7 (International) Advanced Audit & Assurance Revision Mock ExaminationJune 2013Question PaperTime Allowed 15 minutes Reading and planning3 hours WritingThis paper is divided into two sections:Section A – BOTH questions are compulsory and MUST be attempted Section B – TWO questions ONLY to be attemptedDo NOT open this paper until instructed by the supervisor. During reading and planning time only the question paper may be annotated. You must NOT write in your answer booklet until instructed by the supervisor.© Interactive World Wide Ltd, April 2013All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of Interactive World Wide Ltd.This is a blank page.The question paper begins on page 4.Section A – BOTH questions are compulsory and MUST be attempted 1Lacroix Hotels is a small hotel group that owns and manages 18 hotels in the country where it is based. It is owner-managed by the 4 people who set the company up 8 years ago, and has recently reported its first profit after several years of losses. The company borrowed heavily in its first few years and the main reason it has taken so long to record a profit is the high level of interest payments it is making. The first capital repayment of the loan is due to take place on 14 August 2013.You are taking over as the audit manager on the team this year having had no previous involvement with this client. The partner, Mike Ross, has been involved with this client for the last 2 years, and he is keen for you to have plenty of client contact to help build up your client understanding, and to ensure a smooth audit process. The final audit of the financial statements for the year ending 31 May 2013 is due to begin towards the end of June.Last week you met with the Finance Director, Leroy Galliant. You made the following notes at the meeting:“The company is expecting to make a small profit for the y/e 31 May 2013, although there are a few issues to resolve before draft financial statements can be issued. The year-end inventory count did not go well, with around $175,000 of inventory recorded on the system not being found anywhere in the various storage areas. Apparently a surprise inventory count halfway through the accounting year had the same problem, although Leroy seems to have no idea what the problem is. He wants to meet with Mike to discuss how we might help with this issue – he is not clear what “forensic auditing”involves but is keen to understand it better before taking the matter any further. He is also interested to hear Mike’s views on what the problem might be, and how we might go about trying to resolve it.With the first big loan repayment coming up in a few weeks, the hotels have stopped any big capital projects in order to preserve cashflow – for example, the gym equipment in most of the hotels was due for renewal in April 2013, but they have put this back by at least 12 months and seem willing to put it back another 12 months if necessary. Leroy also mentioned some investigation by the health and safety authorities – something to do with a lack of supervision of guests using gym equipment – that has resulted in a couple of serious injuries to guests around 6 weeks ago. It is too soon to know for sure what will happen, but apparently they may have to close the gyms whilst the investigation continues. Leroy is worried, because he knows another hotel group was forced to close their gyms for over 6 months last year after a similar incident.”Mike Ross is going to meet with Leroy Galliant in a few days’ time. He has asked you to put some briefing notes together to help with the meeting and also wants to chat with you in person about how your client meeting went with Leroy. Mike has not spoken with Leroy for a few weeks, and has his concerns about the company. A number of competitors have been expanding in recent months and have been marketing themselves aggressively to win business. Several of the competitors are investing in new environmentally friendly systems that reduce water and electricity usage, and Lacroix Hotels have yet to follow this trend – and there is concern that they are losing somebusiness, especially corporate clients who use the company for conferences, as a result.Required:(a) Using the information provided, identify and explain the businessrisks facing Lacroix Hotels. (13 marks) (b) Identify and explain the risks of material misstatement that mayarise from the health and safety breach and the decision not to renew the gym equipment in the hotels. (8 marks) (c) Prepare briefing notes for the meeting between Mike Ross andLeroy Galliant covering:(i) the definition of forensic auditing, and (2 marks)(ii) suggesting potential reasons why the inventory counts are showing problems, and the procedures that could help toestablish which of the reasons is actually to blame.(12 marks) Note – 2 professional marks each are included in the mark allocation of parts (a) and (c).Note. Assume it is 11 June 2013.(35 marks)2Plaza, a limited liability company, is a major food retailer. Further to the success of its national supermarkets in the late 1990s and 2000s it has extended its operations throughout Europe and most recently to Asia, where it is expanding rapidly.You are a manager in Andando, a firm of Chartered Certified Accountants.You have been approached by Duncan Seymour, the chief finance officer of Plaza, to advise on a bid that Plaza is proposing to make for the purchase of MCM. You have ascertained the following from a briefing note received from Duncan.MCM provides training in management, communications and marketing to a wide range of corporate clients, including multi-nationals. The ‘MCM’ name is well regarded in its areas of expertise. MCM is currently wholly-owned by Frontiers, an international publisher of textbooks, whose shares are quoted ona recognised stock exchange. MCM has a National and an Internationalbusiness.The National business comprises 11 training centres. The audited financial statements show revenue of $12.5 million and profit before taxation of $1.3 million for this geographic segment for the year to 30 June 2011. Most of the National business’s premises are owned or held on long leases. Trainers in the National business are mainly full-time employees.The International business has five training centres in Europe and Asia. For these segments, revenue amounted to $6.3 million and profit before tax $2.4 million for the year to 30 June 2011. Most of the International business’s premises are held on operating leases. International trade receivables at 30 June 2011 amounted to $3.7 million. Although the International centres employ some full-time trainers, the majority of trainers provide their services as freelance consultants.Required:(a) Define ‘due diligence’ and describe the nature and purpose of adue diligence review. (3 marks)(b) Write a memorandum to the audit junior Pawar Rashadexplaining the matters you should consider before accepting anengagement to conduct a due diligence review of MCM. (12 marks)(c) Illustrate how:(i) Enquiry (4 marks)(ii) Analytical procedures (6 marks)might appropriately be used in the due diligence review of MCM.(25 marks)This is a blank page. Section B begins on page 8.Section B – TWO questions ONLY to be attempted3You are an audit manager in Bartolome, a firm of Chartered Certified Accountants. You have specific responsibility for undertaking annual reviews of existing clients and advising whether an engagement can be properly continued. The following matters have arisen in connection with recent assignments:(a)Leon Dormido is the senior in charge of the audit of the financialstatements of Moreno, a limited liability company, for the year ending 30June 2013. Moreno’s Chief Executive Officer, James Bay, has just sentyou an e-mail to advise you that Leon has been short-listed for theposition of Finance Director. You were not previously aware that Leonhad applied for the position. (5 marks)(b)Chatam, a limited liability company, is a long-standing client. One of itssubsidiaries, Ayora, has made losses for several years. At your firm’srequest, Chatam’s management has made a written representation thatgoodwill arising on the acquisition of Ayora is not impaired. Your firm’sauditors’ report on the consolidated financial statements of Chatam forthe year ended 31 March 2013 is unqualified. Your firm’s auditors’report on the financial statements of Ayora is similarly unqualified.Chatam’s Chief Executive, Charles Barrington, is due to retire in 2013when his share options mature. (6 marks)(c)Pinzon, a limited liability company and audit client, is threatening to sueyour firm in respect of audit fees charged for the year ended 31December 2011. Pinzon is alleging that Bartolome billed the full rate onair fares for audit staff when substantial discounts had been obtained byBartolome. (4 marks)(d)Hewitt, a limited liability company and audit client, has seen its profitscollapse in recent years. The company has decided it needs a majorrestructuring if it is to survive, and has asked your firm for advice inproducing a business plan to take to its bank in order to achieve newfinance. (5 marks) Required:Comment on the ethical and other professional issues raised by each of the above matters and their implications, if any, for the continuation of each assignment.(20 marks)Note. The mark allocation is shown against each of the three issues.Note. Assume today’s date is 11 June 2013.4You are the manager responsible for the audit of Seymour Co. The company offers information, proprietary foods and medical innovations designed to improve the quality of life. (Proprietary foods are marketed under and protected by registered names.) The draft consolidated financial statements for the year ended 31 March 2013 show revenue of $74·4 million (2012 – $69·2 million), profit before taxation of $13·2 million (2012 – $15·8 million) and total assets of $53·3 million (2012 – $40·5 million). The following issues arising during the final audit have been noted on a schedule of points for your attention:(a)In 2006, Seymour had been awarded a 20-year patent on a new drug,Tournose, that was also approved for food use. The drug had beendeveloped at a cost of $4 million which is being amortised over the lifeof the patent. The patent cost $11,600. In March 2013 a competitorannounced the successful completion of preliminary trials on analternative drug with the same beneficial properties as Tournose. Thealternative drug is expected to be readily available in two years’ time.(7 marks)(b) Seymour offers health-related information services through a wholly-owned subsidiary, Aragon Co. Goodwill of $1·8 million recognised onthe purchase of Aragon in April 2010 is not amortised but included atcost in the consolidated statement of financial position. At 31 March2013 Seymour’s investment in Aragon is shown at cost, $4·5 million, inits separate financial statements.Aragon’s draft financial statements for the year ended 31 March 2013show a loss before taxation of $0·6 million (2011 – $0·5 million loss)and total assets of $4·9 million (2012 – $5·7 million). The notes toAragon’s financial statements disclose that they have been prepared ona going concern basis that assumes that Seymour will continue toprovide financial support. (7 marks)(c) In May 2013 Seymour announced the recall and discontinuation of arange of petcare products. The product recall was prompted by the highlevel of customer returns due to claims of poor quality. For the year to31 March 2013, the product range represented $8·9 million ofconsolidated revenue (2012 – $9·6 million) and $1·3 million loss beforetax (2012 – $0·4 million profit before tax). The results of the ‘petcare’operations are disclosed separately on the face of the income statement.(6 marks)Required:For each of the above issues:(i) comment on the matters that you should consider; and(ii) state the audit evidence that you should expect to find, in undertaking your review of the audit working papers andfinancial statements of Seymour Co for the year ended 31 March2013.(20 marks)Notes. Assume today’s date is 11 June 2013. The mark allocation is shown against each of the three issues.5(a) Explain the external auditor’s responsibility in respect of a client’s going concern status, and describe the potential effectson the audit report should there be going concern threats at aclient. (8 marks)(b)You are an audit manager in Fine & Young, a firm of Chartered CertifiedAccountants. One of your audit clients, Icehouse, is a textbookpublisher. Icehouse is planning to expand through the acquisition of anumber of small publishers of other media such as DVD and CDs. Thefinance director of Icehouse has been reviewing the financial statementsof potential targets. He has come across an auditors’ report dated 19January 2013, on financial statements for the year ended 30 September2012, which does not have the standard wording of an unqualifiedreport. The finance director has now approached you for an explanationof its meaning. The auditor’s responsibility and opinion paragraphs areas follows:‘Auditor’s responsibilityOur responsibility is to express an opinion on these financial statementsbased on our audit. We conducted our audit in accordance withInternational Standards on Auditing. Those standards require that wecomply with ethical requirements and plan and perform the audit toobtain reasonable assurance whether the financial statements are freefrom material misstatement.An audit involves performing procedures to obtain audit evidence aboutthe amounts and disclosures in the financial statements. Theprocedures selected depend on the auditor’s judgment, including theassessment of the risks of material misstatement of the financialstatements, whether due to fraud or error. In making those riskassessments, the auditor considers internal control relevant to theentity’s preparation and fair presentation of the financial statements inorder to design audit procedures that are appropriate in thecircumstances, but not for the purpose of expressing an opinion on theeffectiveness of the entity’s internal control.However, the evidence available to us identified certain transactionswhich had not been included in the previous year’s records and as aresult had been omitted from the financial statements for the yearended 30 September 2011.Adjustments have been made and are disclosed in Note 22. An auditalso includes evaluating the appropriateness of accounting policies usedand the reasonableness of accounting estimates made by management,as well as evaluating the overall presentation of the financialstatements. We believe that the audit evidence we have obtained issufficient and appropriate to provide a basis for our audit opinion’.Opinion‘In our opinion the financial statements give a true and fair view of thestate of the company’s affairs as at 30 September 2011 and its financialperformance and its cash flows for the year then ended in accordancewith International Financial Reporting Standards.‘The company’s liabilities exceed its assets at 30 September 2011creating an adverse situation which the directors believe is reversibleover the coming twelve months. The directors further believe that thecompany is capable of continuing to trade for twelve months from thedate of this report.‘19 January 2013’Required:Identify and explain the weaknesses of this report. (12 marks)(20 marks)Note. Assume today’s date is 11 June 2013. 11。

超实用：ACCA全国第一P3学习攻略7月18号收到成绩时着实惊讶了很久。

大三这半年我的重心并没有完全在ACCA上，留给备考的时间不到一个月。

进P阶段以后我从没想过要冲第一，但我发自内心的喜欢这一门科目。

P3是一门很傲娇的paper，它是ACCA整个课程体系里的霸道总裁，站在金字塔的顶端运筹帷幄，做着关乎企业生存发展的strategy，而学到此时我们被赋予的身份是企业的CEO或者咨询顾问，有机会感受一个在毕业之后短时间内都无法达到的高度和视野，这是多酷的事情。

从5月份开始进入复习状态，我的复习过程相信和大多数人类似，分为三步，第一步知识点巩固，第二步真题练习，第三步回顾总结。

P3的知识点并不难，但在复习知识点这一步最重要的是要把零碎的知识点串成一个完整的体系。

P3的整本书是有一个很清晰的整体逻辑的，举个例子：一般来说case study从外部战略环境分析开始，所以一开篇我们接触到的就是和外部战略环境相关的模型，PESTLE给了我们一个全面分析external environment的方向，五力模型将视角缩小一个具体行业的吸引力，Diamond研究一个企业的成功可否在另外一个新的环境里复制。

若外部环境有利，接下来则把视野转向公司内部。

而对内部的分析最重要是能不能拥有competitive advantages. 这就涉及到对value chain的分析，和对于competitivestrategy的选择。

往后走，当企业发展到一定阶段，必然面临着本地市场趋于饱和，产品进入衰退期的状况，这时Ansoff和TOWS模型给我们指引了一个继续扩张的方向。

而扩张之后，企业从单一的company变成了有多个业务组合和公司单元的corporate，业务越来越复杂，如何更好地分配资源，进行项目管理？BCG matrix和Ashridge porfolio就是很好的评估工具等等。

这里要特别感谢一下教我们P3的Rainbow老师，在讲解知识点的时候，从一开始就给了我们一个很清晰的宏观视野。

2010年ACCA P1-P3真题Section A – This ONE question is compulsory and MUST be attempted1.In the 2009 results presentation to analysts, the chief executive of ZPT, a global internet communications company, announced an excellent set of results to the waiting audience. Chief executive Clive Xu announced that, compared to 2008, sales had increased by 50%, profits by 100% and total assets by 80%. The dividend was to be doubled from the previous year. He also announced that based on their outstanding performance, the executive directors would be paid large bonuses in line with their contracts. His own bonus as chief executive would be $20 million. When one of the analysts asked if the bonus was excessive, Mr Xu reminded the audience that the share price had risen 45% over the course of the year because of his efforts in skilfully guiding the company. He said that he expected the share price to rise further on the results announcement, which it duly did. Because the results exceeded market expectation, the share price rose another 25% to $52.Three months later, Clive Xu called a press conference to announce a restatement of the 2009 results. This was necessary, he said, because of some ‘regrettable accounting errors’. This followed a meeting between ZPT and the legal authorities who were investigating a possible fraud at ZPT. He disclosed that in fact the figures for 2009 were increases of 10% for sales, 20% for profits and 15% for total assets which were all significantly below market expectations. The proposed dividend would now only be a modest 10% more than last year. He said that he expected a market reaction to the restatement but hoped that it would only be a short-term effect.The first questioner from the audience asked why the auditors had not spotted and corrected the fundamental accounting errors and the second questioner asked whether such a disparity between initial and restated results was due to fraud rather than ‘accounting errors’. When a journalist asked Clive Xu if he intended to pay back the $20 million bonus that had been based on the previous results, Mr Xu said he did not. The share price fell dramatically upon the restatement announcement and, because ZPT was such a large company, it made headlines in the business pages in many countries. Later that month, the company announced that following an internal investigation, there would be further restatements, all dramatically downwards, for the years 2006 and 2007. This caused another mass selling of ZPT shares resulting in a final share value the following day of $1. This represented a loss of shareholder value of $12 billion from the peak share price. Clive Xu resigned and the government regulator for business ordered an investigation into what had happened at ZPT. The shares were suspended by the stock exchange. A month later, having failed to gain protection from its creditors in the courts, ZPT was declared bankrupt. Nothing was paid out to shareholderswhilst suppliers received a fraction of the amounts due to them. Some non-current assets were acquired by competitors but all of ZPT’s 54,000 employees lost their jobs, mostly with little or no termination payment. Because the ZPT employees’ pension fund was not protected from creditors, the value of that was also severely reduced to pay debts which meant that employees with many years of service would have a greatly reduced pension to rely on in old age.The government investigation found that ZPT had been maintaining false accounting records for several years. This was done by developing an overly-complicated company structure that contained a network of international branches and a business model that was difficult to understand. Whereas ZPT had begun as a simple telecommunications company, Clive Xu had increased the complexity of the company so that he could ‘hide’ losses and mis-report profits. In the company’s reporting, he also substantially overestimated the value of future customer supply contracts. The investigation also found a number of significant internal control deficiencies including no effective management oversight of the external reporting process and a disregard of the relevant accounting standards. In addition to Mr Xu, several other directors were complicit in the activities although Shazia Lo, a senior qualified accountant working for the financial director, had been unhappy about the situation for some time. She had approached the finance director with her concerns but having failed to get the answers she felt she needed, had threatened to tell the press that future customer supply contract values had been intentionally and materially overstated (the change in fair value would have had a profit impact). When her threat came to the attention of the board, she was intimidated in the hope that she would keep quiet. She finally accepted a large personal bonus in exchange for her silence in late 2008.The investigation later found that Shazia Lo had been continually instructed, against her judgement, to report figures she knew to be grossly optimistic. When she was offered the large personal bonus in exchange for her silence, she accepted it because she needed the money to meet several expenses related to her mother who was suffering a long-term illness and for whom no state health care was available. The money was used to pay for a lifesaving operation for her mother and also to rehouse her in a more healthy environment. Shazia Lo made no personal financial gain from the bonus at all (the money was all used to help her mother) but her behaviour was widely reported and criticised in the press after the collapse of the company.The investigation found that the auditor, JJC partnership (one of the largest in the country), had had its independence compromised by a large audit fee but also through receiving consultancy income from ZPT worth several times the audit fee. Because ZPT was such an important client for JJC, it had many resources and jobs entirely committed to the ZPT account. JJC had, it was found, knowingly signed off inaccurate accounts in order to protect the management of ZPT and their ownsenior partners engaged with the ZPT account. After the investigation, JJC’s other clients gradually changed auditor, not wanting to be seen to have any connection with JJC. Accordingly, JJC’s audit business has since closed down. This caused significant disturbance and upheaval in the audit industry.Because ZPT was regarded for many years as a high performing company in a growing market, many institutional investors had increased the number of ZPT shares in their investment portfolios. When the share price lost its value, it meant that the overall value of their funds was reduced and some individual shareholders demanded to know why the institutional investors had not intervened sooner to either find out what was really going on in ZPT or divest ZPT shares. Some were especially angry that even after the first restatement was announced, the institutional investors did not make any attempt to intervene. One small investor said he wanted to see more ‘shareholder activism’, especially among the large institutional investors.Some time later, Mr Xu argued that one of the reasons for the development of the complex ZPT business model was that it was thought to be necessary to manage the many risks that ZPT faced in its complex and turbulent business environment. He said that a multiplicity of overseas offices was necessary to address exchange rate risks, a belief challenged by some observers who said it was just to enable the ZPT board to make their internal controls and risk management less transparent.(a) Because of their large shareholdings, institutional investors are sometimes able to intervene directly in the companies they hold shares in.Required:(i) Explain the factors that might lead institutional investors to attempt to intervene directly in the management of a company; (6 marks)(ii) Construct the case for institutional investors attempting to intervene in ZPT after the first results restatement was announced. (6 marks)(b) Distinguish between absolutist and relativist approaches to ethics and critically evaluate the behaviour of Shazia Lo (the accountant who accepted a bonus for her silence) using both of these ethical perspectives. (10 marks)(c) The ZPT case came to the attention of Robert Nie, a senior national legislator in the country where ZPT had its head office. The country did not have any statutory corporate governance legislation and Mr Nie was furious at the ZPT situation because many of his voters had been badly financially affected by it. He believed that legislation was needed to ensure that a similar situation could not happen again. Mr Nie intends to make a brief speech in the national legislative assembly outlining the case for his proposed legislation and some of its proposed provisions.Required:Draft sections of the speech to cover the following areas:(i) Explain the importance of sound corporate governance by assessing the consequences of the corporate governance failures at ZPT; (10 marks)(ii) Construct the case for the mandatory external reporting of internal financial controls and risks; (8 marks)(iii) Explain the broad areas that the proposed external report on internal controls should include, drawing on the case content as appropriate. (6 marks)Professional marks will be awarded in part (c) for the structure, flow, persuasiveness and tone of the answer. (4 marks) (50 marks)Section A – This ONE question is compulsory and MUST be attemptedSection B – TWO questions ONLY to be attempted2、The following draft group financial statements relate to Jocatt, a public limited company: Jocatt Group: Statement of financial position as at 30 NovemberAssets Non-current assets Property, plant and equipment Investment property Goodwill Intangible assets Investment in associate Available-for-sale financial assetsCurrent assets Inventories Trade receivables Cash and cash equivalentsTotal assetsEquity and Liabilities Equity attributable to the owners of the parent: Share capital Retained earnings Other components of equityNon-controlling interestTotal equityNon-current liabilities: Long-term borrowings Deferred tax Long-term provisions-pension liability Total non-current liabilitiesCurrent liabilities: Trade payables Current tax payableTotal current liabilitiesTotal liabilitiesTotal equity and liabilities2010 2009 $m $m327 25486 48 68 85 72 54 – 94 90–––––– ––– 616 490 –––––– –––––105 128 62 113 232 143–––––– –––399 384 –––––– –––––1,015 874 –––––– –––––290 275 351 324 15 20–––––– 656 619 –––––– 55 36 –––––––––––– 711 655 –––––––––––– 67 71 35 41 25 22 ––––––––––– 127 134 –––––– –––––––––– 177 85 –––––– ––––––––––– ––––– 1,015 874 –––––– –––––Jocatt Group: Statement of comprehensive income for the year ended 30 Nember 10$m Revenue 432 Cost of sales (317)––––––– G ross profit 115 Other income 25 Distribution costs (55•5) Administrative expenses (36) Finance costs paid (6) Gains on property 10•5 Share of profit of associate 6––––––– Profit before tax 59 Income tax expense (11)––––––– Profit for the year 48 –––––––Other comprehensive income after tax: Gain on available for sale financial assets (AFS) 2 Losses on property revaluation (7) Actuarial losses on defined benefit plan (6)––––––– Other comprehensive income for the year, net of tax (11) ––––––– Total comprehensive income for the year 37 ––––––––––––––Profit attributable to:Owners of the parent 38Non-controlling interest 10––––––– 48 –––––––Total comprehensive income attributable to:$mOwners of the parent 27Non-controlling interest 10––––––– 37 –––––––Jocatt Group: Statement of changes in equity for the year ended 30 November 2010Share Retained AFS Revaluation Total Non-Total Capital Earnings financial Surplus controlling equity assets (PPE) Interest $m$m $m $m$m $m$mBalance at 1 December 2009 275 324 4 16 619 36 655 Share capital issued 15 15 15 Dividends (5) (5) (13) (18) Rights issue 2 2 Acquisitions 20 20 Total comprehensive income for the year 32 2 (7) 27 10 37Balance at 30 November 2010 290 351 6 9 656 55 711––– ––––The following information relates to the financial statements of Jocatt:(i) On 1 December 2008, Jocatt acquired 8% of the ordinary shares of Tigret. Jocatt had treated this investment as available-for-sale in the financial statements to 30 November 2009. On 1 December 2009, Jocatt acquired a further 52% of the ordinary shares of Tigret and gained control of the company. The consideration for the acquisitions was as follows:Holding Consideration $m1 December 2008 8% 41 December 2009 52% 30––––– –––– 60% 34 ––––– ––––At 1 December 2009, the fair value of the 8% holding in Tigret held by Jocatt at the time of the business combination was $5 million and the fair value of the non-controlling interest in Tigret was $20 million. No gain or loss on the 8% holding in Tigret had been reported in the financial statements at 1 December 2009. The purchase consideration at 1 December 2009 comprised cash of $15 million and shares of $15 million.The fair value of the identifiable net assets of Tigret, excluding deferred tax assets and liabilities, at the date of acquisition comprised the following:$mProperty, plant and equipment 15 Intangible assets 18 Trade receivables 5 Cash 7The tax base of the identifiable net assets of Tigret was $40 million at 1 December 2009. The tax rate of Tigret is 30%.(ii) On 30 November 2010,Tigret made a rights issue on a 1 for 4 basis. The issue was fully subscribed and raised $5 million in cash.(iii) Jocatt purchased a research project from a third party including certain patents on 1 December 2009 for $8 million and recognised it as an intangible asset. During the year, Jocatt incurred further costs, which included $2 million on completing the research phase, $4 million in developing the product for sale and $1 million for the initial marketing costs. There were no other additions to intangible assets in the period other than those on the acquisition of Tigret.(iv) Jocatt operates a defined benefit scheme. The current service costs for the year ended 30 November 2010 are $10 million. Jocatt enhanced the benefits on 1 December 2009 however, these do not vest until 30 November 2012. The total cost of the enhancement is $6 million. The expected return on plan assets was $8 million for the year and Jocatt recognises actuarial gains and losses within other comprehensive income as they arise.(v) Jocatt owns an investment property. During the year, part of the heating system of the property,which had a carrying value of $0•5 million, was replaced by a new system, which cost $1 mil lion. Jocatt uses the fair value model for measuring investment property.(vi) Jocatt had exchanged surplus land with a carrying value of $10 million for cash of $15 million and plant valued at $4 million. The transaction has commercial substance. Depreciation for the period for property, plant and equipment was $27 million.(vii) Goodwill relating to all subsidiaries had been impairment tested in the year to 30 November 2010 and any impairment accounted for. The goodwill impairment related to those subsidiaries which were 100% owned.(viii) Deferred tax of $1 million arose on the gains on available-for-sale investments in the year.(ix) The associate did not pay any dividends in the year.Required:(a) Prepare a consolidated statement of cash flows for the Jocatt Group using the indirect method under IAS 7 ‘Statement of Cash Flows’.Note: Ignore deferred taxation other than where it is mentioned in the question. (35 marks) (b) Jocatt operates in the energy industry and undertakes complex natural gas trading arrangements, which involve exchanges in resources with other companies in the industry. Jocatt is entering into a long-term contract for the supply of gas and is raising a loan on the strength of this contract. The proceeds of the loan are to be received over the year to 30 November 2011 and are to be repaid over four years to 30 November 2015. Jocatt wishes to report the proceeds as operating cash flow because it is related to a long-term purchase contract. The directors of Jocatt receive extra income if the operating cash flow exceeds a predetermined target for the year and feel that the indirect method is more useful and informative to users of financial statements than the direct method.(i) Comment on the directors’ view that the indirect method of preparing statements of cash flow is more useful and informative to users than the direct method. (7 marks)(ii) Discuss the reasons why the directors may wish to report the loan proceeds as an operating cash flow rather than a financing cash flow and whether there are any ethical implications of adopting this3.Section A – This ONE question is compulsory and MUST be attemptedThe following information should be used when attempting question 1IntroductionShoal plc is a well-known corporate organisation in the fish industry. It owns 14 companies concerned with fishing and related industries.This scenario focuses on three of these companies:ShoalFish Ltd – a fishing fleet operating in the western oceans ShoalPro Ltd – a company concerned with processing and canning fish ShoalFarm Ltd – a company with saltwater fish farms.Shoal plc is also finalising the purchase of the Captain Haddock chain of fish restaurants. ShoalFishShoal plc formed ShoalFish in 2002 when it bought three small fishing fleets and consolidated them into one fleet. The primary objective of the acquisition was to secure supplies for ShoalPro. 40% of the fish caught by ShoalFish are currently processed in the ShoalPro factories. The rest are sold in wholesale fish markets. ShoalFish has recorded modest profits since its formation but it is operating in a challenging market-place. The western oceans where it operates have suffered from many years of over-fishing and the government has recently introduced quotas in an attempt to conserve fish stocks.ShoalFish has 35 boats and this makes it the sixth largest fleet in the western oceans. Almost half of the total number of boats operating in the western oceans are individually owned and independently operated by the boat’s captain. Recent information for ShoalFish is given in Figure ShoalProShoalPro was acquired in 1992 when Shoal plc bought the assets of the Trevarez Canning and Processing Company. Just after the acquisition of the company, the government declared the area around Trevarez a ‘zone of industrial assistance’. Grants were made available to develop industry in an attempt to address the economic decline and high unemployment of the area. ShoalPro benefited from these grants, developing a major fish processing and canning capability in the area. However, despite this initiative and investment, unemployment in the area still remains above the average for the country as a whole.ShoalPro’s modern facilities and relatively low costs have made it attractive to many fishing companies. The fish received from ShoalFish now accounts for a declining percentage of the total amount of fish processed and canned in its factories in the Trevarez area. Recent information for ShoalPro is given in Figure 1.ShoalFarmShoalFarm was acquired in 2004 as a response by Shoal plc to the declining fish stocks in the western oceans. It owns and operates saltwater fish farms. These are in areas of the ocean close to land where fish are protected from both fishermen and natural prey, such as sea birds. Fish stocks can be built up quickly and then harvested by the fish farm owner. Shoal plc originally saw this acquisition as a way of maintaining supply to ShoalPro.Operating costs at ShoalFarm have been higher than expected and securing areas for new fish farmshas been difficult and has required greater investment than expected. Recent information for ShoalFarm is given in Figure 1.Figure 1: Financial data on individual companies 2007–2009Captain HaddockThe Captain Haddock chain of restaurants was founded in 1992 by John Dory. It currently operates one hundred and thirty restaurants in the country serving high quality fish meals. Much of Captain Haddock’s success has been built on the quality of its food and service. Captain Haddock has a tradition of recruiting staff directly from schools and universities and providing them with excellent training in the Captain Haddock academy. The academy ensures that employees are aware of the ‘Captain Haddock way’ and is dedicated to the continuation of the quality service and practices developed by John Dory when he launched the first restaurant. All management posts are filled by recruiting from within the company, and all members of the Captain Haddock board originally joined the company as trainees. In 1999 the Prime Minister of the country identified Captain Haddock academy as an example of high quality in-service training. In 2000, Captain Haddock became one of the thirty best regarded brands in the country.In the past few years, the financial performance of Captain Haddock has declined significantly (see Figure 2) and the company has had difficulty in meeting its bank covenants. This decline is partly due to economic recession in the country and partly due to a disastrous diversification into commercial real estate and currency dealing. The chairman and managing director of the company both resigned nine months ago as a result of concern over the breaking of banking covenants and shareholder criticism of the diversification policy. Some of the real estate bought during this period is still owned by the company. In the last nine months the company has been run by an interim management team, whilst looking for prospective buyers. At restaurant level, employee performance still remains relatively good and the public still highly rate the brand. However, at a recent meeting one of the employee representatives called for a management that can ‘effectively lead employees who are increasingly demoralised by the decline of the company’.Shoal plc is currently finalising their takeover of the Captain Haddock business. The company is being bought for a notional $1 on the understanding that $15 million is invested into the company to meet short-term cash flow problems and to improve liquidity. Shoal plc’s assessment is that there is nothing fundamentally wrong with the company and that the current financial situation is caused by the failed diversification policy and the cost of financing this. The gross profit margin in the sector averages 10%.Captain Haddock currently buys its fish and fish products from wholesalers. It is the intention of Shoal plc to look at sourcing most of the dishes and ingredients from its own companies; specifically ShoalFish, ShoalPro and ShoalFarm. Once the takeover is complete (and this should be within the next month), Shoal plc intends to implement significant strategic change at Captain Haddock so that it can return to profi tability as soon as possible. Shoal plc has implemented strategic change at a number of its acquisitions. The company explicitly recognises that there is no ‘one right way’ to manage change. It believes that the success of any planned change programme depends on an understanding of the context in which the change is taking place.Captain Haddock (all figures in $m) 2007 2008 2009 Turnover 115•00 114•50 114•00 Gross profi (loss) 0•20 (5•10 ) (6•20 )Figure 2: Financial information for Captain Haddock 2007–2009Required:(a) In the context of Shoal plc’s corporate-level strategy, assess the contribution and performance of ShoalFish, ShoalPro and ShoalFarm. Your assessment should include an analysis of the position of each company in the Shoal plc portfolio. (15 marks)(b) Shoal plc explicitly recognises that there is no ‘one right way’ to manage change. It believes that the success of any planned change programme will depend on a clear understanding of the context within which change will take place.(i) Identify and analyse, using an appropriate model, the contextual factors that will inflence how strategic change should be managed at Captain Haddock. (13 marks)Professional marks will be awarded in part (b)(i) for the identifiation and justifiation of an appropriate model. (2 marks)(ii) Once the acquisition is complete, Shoal plc wish to quickly turnaround Captain Haddock and return it to profitability.Identify and analyse the main elements of strategic change required to achieve this goal. (8 marks)Professional marks will be awarded in part (b)(ii) for the cogency of the analysis and for the overall relevance of the answer to the case study scenario. (2 marks)(c) Portfolio managers, synergy managers and parental developers are three corporate rationales for adding value.Explain each of these separate rationales for adding value and their relevance to understanding the overall corporate rationale of Shoal plc. (10 marks) (50 marks)Section B – TWO questions ONLY to be attempted参与ACCA考试的考生可按照复习计划有效进行，另外高顿网校官网ACCA考试辅导高清课程已经开通，财经网络教育领导品牌_________________________________________________________________ 还可索取ACCA考试通关宝典，针对性地讲解、训练、答疑、模考，对学习过程进行全程跟踪、分析、指导，可以帮助考生全面提升复习备考效果。

ACCA Fundamentals Level Paper F6 (FA 2009) Taxation (UK)Question Day Final Mock ExaminationGuidance, Marking scheme and Suggested solutionsGuidance on improving your exam performanceWhich questions to do first?It is important for you to decide which order to attempt the questions. Each question will carry different marks so you may prefer to attempt the question with the most marks first or, instead, you may prefer to attempt the topic you are more confident about first. This means you will build up marks early on giving you a solid base to tackle the harder questions later.Whichever you choose, do not spend too long on the questions you are confident about as you need to spend an appropriate amount of time on them all. You can work out how much time you should spend on each by looking at the mark allocation and multiplying by 1.8 (as you have 1.8 minute per mark, not including reading time). For instance, you must not spend more than 18 minutes on a 10-mark question. Remember, you cannot pass the exam answering two or three questions well and the rest poorly.An alternative strategy is to answer all questions in strict order. You could use the time saved choosing the order by starting to plan your answers. You may prefer to use this method if you find yourself spending too long on your favourite questions as it forces you to spend an appropriate amount of time on each before moving on. StrategyMake sure your answers are easy to follow. The focus of the exam is computations, so make sure you use the correct proformas and show your workings, referenced in clearly.If there is a written element to a question do write full sentences, even if you are using bullet points.Time managementUse the reading time to make sure that you get as many of the marks as possible. This is your opportunity to brainstorm areas that you are less confident with and even to make a brief outline of the proformas you are going to use in your answers.Whatever notes/plans you make, use them when writing up your answer when the writing time begins. Tick off each item as you complete it. If you do not use your planning notes it was a waste of time doing them in the first place.Never overrun on any question; once the time is up move on to the next one.1 William WiseMarking schemeMarks(a)Net profit½Depreciation1Private use of light/heat1Private motor expenses1Legal fees1Personal tax1Private rent/rates1Repairs/renewals1Food hampers1Donation1Daughter’s salary1Goods for own use1Capital allowances2½14(b)Taxable income2Income tax2Class 4 NICs15(c)Salary½Bonus1Car1Fuel½Mobile – exempt½Use of private jet½Computer1Healthcare 1625 Suggested solutionChapter references. The income tax computation is in Chapter 2. Employment income is in Chapter 3 and taxable benefits are in Chapter 4. Trading income is dealt with in Chapter 7 with capital allowances covered in Chapter 8. National insurance is in Chapter 12.Top tips. In our answer we have made notes on why various adjustments were made. This is done for tutorial purposes. You did not need to give the explanations in the exam as they were not asked for.Always read the question.Easy marks. The calculation of the tax liability should provide a good opportunity to obtain easy marks – the bands are given to you in the tax rates and allowances tables.(a)£ £ Net profit30,200Add: Depreciation4,760Private light and heat (40%)610Private motor expenses (75%)3,540Legalfees1,200Personaltax250Private rent and rates (40%)1,560Repairsandrenewals1,050Foodhampers640Donation100Daughter’s salary (excessive amount)4,500Goods for own use 65018,860 Less: Capital allowances (W1)(25,245) Taxable trading profit 23,815Notes1 The legal fees incurred in connection with the clothing shop are not allowable since theyrelate to a capital item.2 Personal or private expenses are not allowable.3 The £2,200 spent on repairs in June 2009 is allowable because the shop was in a fit stateto use on purchase.4 Giftsoffood are not allowable. However, the gifts of pens are allowable because the pens carry a conspicuous advertisement for the business and cost less than £50 each.5 A donation to a national charity is not allowable. The donation to the local charity can beallowed as it carried an advertisement for the business and could be said to be made forthe purposes of the trade.6 Goods taken for own use must be brought into the profit and loss account at selling price.7 The excessive part of William's wife's salary is not allowable.Workings1 Capital allowancesPrivate useAIA General pool Car (25%)Allowances£ £ £ £ Additions 24,620 20,000AIA (100%) AIA (10/12 x 50K) (24,620)–24,620WDA x 10/12 (2,500) x 25% 62517,500 25,245(b)Non- savings Dividendincome income££Taxable trading profit (1.6.09 – 31.3.10) 23,815Dividends (× 100/90)7,500Net Income23,8157,500Less: personal allowance(6,475)Taxable Income 17,3307,500£24,830 Tax on non-savings income £ £17,330 × 20%3,466 Tax on dividend income£7,500 × 10% 7504,216 Class 4 NICs:(£23,815 – £5,715) × 8%£1,448 Note: You were not told that a Gift Aid declaration had been made in respect of the gift to the national charity.Mary’s total taxable employment income for the year is as follows:£ Salary80,000 Bonus – receipts basis20,000 Use of company car: 25% × £19,200 (W)4,800 Private fuel: 25% × £16,900 (W)4,225 Use of private jet: 20% × £750,000 ×1/1212,500 Computer: £3,000× 20%600 Private healthcare: (marginal cost to employer) 250 Total employment income122,375 WorkingCar and fuel benefit percentage5135187−= 10% + 15%25% Note: The provision of one mobile phone is an exempt benefit2 Eagle LtdMarking schemeMarks(a)IBAsQualifying expenditure1Offices not qualifying12% allowance1Land not qualifying1CAs:Expensive car120% WDA1FYA 1AIA1Adjusted trading profitPatent royalties 19(b)Trading income1Property income: warehouse 1222 warehouseChargeable gain: 1Gift aid donation1Franked investment income1Divide CT limits1Marginal relief company2CT liability1Due date113(c)Associates 1Group relief group 1Gains group 2Current year in Wing Ltd 1Set against income before charges 1Loss of period since joined group1Effect on gift aid donations 1830 Suggested solutionChapter references. Calculating PCTCT and the corporation tax liability is dealt with in Chapters 18 and19. Groups are in Chapter 22 and losses in Chapter 21. Capital allowances are covered in Chapter 8.Top tips. Try and keep your calculations in separate workings then make sure you reference them into your main answer clearly.(a) Easy marks. If you had learnt your capital allowances proforma you should have been able topick up some easy marks simply by filling in the figures given to you in the question)Tax adjusted trading profit£Trading profit per accounts229,900Less: Patent royalties payable(20,000) Industrial buildings allowances (W1)(3,800)(W2) (48,940)allowancesCapitalcomputation – y/e 31.3.10(b) CT£ Trading income 157,160 Property income (W3) 49,950 Chargeable gain (W4) 22,932230,042 Less: gift aid donation (3,000) PCTCT 227,042 FII (£27,000 × 100/90) 30,000 ‘profits’ 257,042 Tax @ 28% (W5)63,571 Less: marginal relief227,042(7,619) 7/400× (£750,000 – 257,042) ×257,042CT due by 1 January 2011 55,952 (c) Group relationships between Eagle Ltd and Wing Ltd(i) Associates – as Eagle Ltd controls Wing Ltd (ie owns > 50%) the two companies areassociated for corporation tax purposes. Consequently the CT limits are divided by 2.(ii) Group relief group – as Eagle Ltd has at least a 75% shareholding the two companies can surrender trading (and certain other) losses of the current period between each othei)Gains group – as Eagle Ltd has at least a 75% shareholding the two companies are in agains group. This means that assets can be transferred between them at no gain/no lossfor chargeable gains purposes, that they form one ‘unit’ for rollover relief purposes, andthat where an asset is sold to a third party an election may be made to treat the gain/lossas transferred to the other company in the group.Use of Wing Ltd’s lossWing Ltd has a small amount of interest income in the year. This is partly covered by the gift aid donation, and the balance will be taxable at the small companies’ rate of 21%. If it uses its loss in the current year this will be set off before charges and would only save tax at 21% and waste the gift aid donation.As it is in a group relief group with Eagle Ltd, it could surrender its trading loss to that company where this would save tax at 29.75%.However, as Wing Ltd did not join the group until 1 September 2009, only the loss thatcorresponds to the period that it has been in the group may be surrendered. As both companies prepare accounts to 31 March there is no need to further consider corresponding periods.The maximum group relief that could be surrendered to Eagle Ltd would be £30,392 (W6).It is probable that Wing Ltd would not make the current year claim but instead carry forward the remainder of the loss automatically to set against future trade profits.Working1 Industrial buildings allowances£ Factory141,000Canteen32,000Site preparation12,000Archit’ct's fees 5,000190,000 Note. The cost of the general offices does not qualify as it exceeds 25% of the total cost(72,500/262,500 = 27.6%). Always exclude the cost of land.Therefore IBAS @ 2% = £3,82Capital allowancesExpensiveAIA FYA General pool Motor car Allowances£££££TWDV b/f64,70014,700Disposals(12,400)Addition11,300FYA 10% (11,300)2,30011,300WDA @ 20%–(12,940)12,940Balancing allowance(2,300)2,300Addition22,400AIA (100%)(22,400)22,40051,76048,940 -3 Property income£ Warehouse 1Premium (£50,000 – (2% × £50,000 × 7))43,000Rent (£12,600 × 9/12)9,450Warehouse 2Rent (£8,400 × 9/12)6,300Bad debt (8,400 x 3/12) (2,100)Repairs to roof (6,700)49,9504 Capital gain£Proceeds156,000Less: cost(112,800)43,200 Less: indexation(20,268)22,932 Note. Companies are entitled to indexation until the date of disposal of an asset.5 CT limitsAs Wing Ltd becomes an associate part way through the period, the CT limits must be divided by two.££1,500,000 ÷ 2 750,000£300,000 ÷ 2150,000Eagle Ltd’s ‘profits’ are between these limits so marginal relief applies.6 Available trading loss£Loss of y/e 31.3.1052,100Period since joined group: 1.9.09 – 31.3.10 = 7 months ie 7/12 × £52,10030,3923 Yvonne, Sally, Joanne and BelindaMarking schemeMarks(a)Match with shares bought in next 30 days1Gain1Match with Share pool shares1Bonus issues issue 1Gain1Total gain 16(b)Gain on building sold 1Calculation of taxable now1Rolled over amount1Base cost of new asset 14(c)Calculation of gain1Entrepreneurs relief1Annual exemption 1 Taxgain 1on4(d)LandPart disposal calculation 2VaseChattels rule to restrict loss 2Offset loss against gain 1Annual exemption 1620 Suggested solutionChapter references. The basics of calculating chargeable gains are in Chapters 13 . Chattels arecovered in Chapter 14 with shares and securities in Chapter 16. Business reliefs are covered in Chapter15.Top tips. Work through each asset separately, making sure you start with the easier disposals.Easy marks. Part disposal calculations and disposals of chattels have always been common topics in the exam. They are relatively straightforward topics so make sure you know how to deal with them.(a) The sale of Yvonne's shares is initially matched with the shares bought in the next 30 days.£ Proceeds (1,000/5,000 × £23,000)4,600Less: cost (28.3.10)(4,400)Chargeable gain 200Then the shares are matched with the Share pool.£ Disposal proceeds (4,000/5,000)18,400Less: cost (w1)(5,867)12,533 Yvonne's total gain before the annual exemption is £12,733.(W1)No. Cost £ 18.8.97 Purchase 3,000 6,000 19.9.06 Purchase 2,000 5,0005,000 11,000Bonus issue 1:2 2,5007,500 11,000 Disposal (4,000) (5,867) 3,500 5,133(b)Office £ Proceeds 442,800 Less: Cost (187,200)Gain 255,600 Taxable in 09/10 (£442,800 - £400,000) (2,800) Gain rolled over 252,800Base cost of new asset £ Price paid440,000 Less: gain rolled over (252,800)(c)Entrepreneurs’ relief £Proceeds 580,000 Less Costs (325,000)Gain 255,000 Less Entrepreneurs’ relief (255,000 x 4/9) (113,333) Gain 141,667 Annual exemption (10,100) Taxable gain 131,567 Tax at 18% 23,682 (d)Part disposal of land£ Proceeds15,000Less: costB A A + ie 65,00015,00015,000+× £24,000 (4,500) Chargeable gain 10,500 Vase – chattels rules£ Proceeds (deemed) 6,000 Less: cost (10,000) Loss(4,000)Taxable gain£ Gain 10,500 Less: loss (4,000) Gain 6,500£ Gain 6,500 Less: annual exemption(10,100) Taxable gain Nil4 Mr MurphyMarking schemeMarks 2004/05Profits – actual basis12005/06Profits – first 12 months2Overlap profits1½ 2006/07Current year basis profits12007/08Current year basis profits12008/09Profits of gap period2Overlap relief1½2009/10Current year basis to new date 111 Payment dates for 2009/10– Payments on account1– Based on previous year1– Balancing payment & 1st POA1– Once actual tax calculated1415 Suggested solutionChapter references. The basis period rules are in Chapter 9. Self-assessment for individuals is covered in Chapter 18.Top tips. You must set out the tax years that you are dealing with in order to pick up all of the available marks – simply stating ‘1st tax year’ is not enough.Easy marks. Stating payment dates should provide a good opportunity to pick up easy marks so long as you have learnt the material.(a)2004/05 Actual basis 1.8.04 – 5.4.05× £13,000£10,400 8/102005/06 First 12 months’ profit 1.8.04 – 31.7.0531.5.05£13,0001.8.04–1.6.05 – 31.7.05 2/12 × £36,000£ 6,000£19,000 2006/07 Current year basis31.5.06£36,0001.6.05–Overlap profits£1.8.04 – 5.4.05 8 months10,40031.7.052 months 6,0001.6.05–10 months16,4002007/08 Current year basis31.5.07£44,000–1.6.062008/09 19 months to new accounting date£1.6.07 – 31.5.08 (12 months)38,0001.6.08 – 31.12.08 (7 months) 16,00054,000 Overlap relief for 7 months profits7/10 x £16,400 (11,480)£42,520 2009/10 Current year basis–31.12.09£40,0001.1.09Overlap profits to carry forward = 3 months11,480)£4,920 (16,400–(b) Payment dates for 2009/10Two payments on account (POA) will have been made as follows:1st on 31 January 20102nd on 31 July 2010Based on 2008/09 liability (½ paid each time)Balancing payment to be made 31 January 2011 once final liability has been calculated, along with the first POA for 2010/11.5 Confused Ltd and Puzzled LtdMarking schemeMarks(a)(i)Training2(ii)Transport2(iii)Air ambulance services26(b)Errors up to £10,0002Errors over £10,0002410Suggested solutionChapter references. VAT is in Chapters 25 and 26.Top tips. You must allocate sufficient time to deal with both parts of the requirement. You only had 18minutes for this question, so do not allow yourself to overrun.Easy marks. Easy marks can be obtained simply by calculating the VAT on a VAT exclusive figure using17.5% or a VAT inclusive figure at 7/47, so read the question carefully to ensure you are using the correctrate.(a) (i) TrainingConfused Ltd will be required to register for VAT as it will be making taxable supplies inexcess of the registration threshold.Output tax£Sales (£75,000 × 17½%)13,125Less: input tax (£10,000 × 7/47) (1,489)VAT due11,636(ii) TransportConfused Ltd will be required to notify HMRC of a need to register for VAT but because itis making only zero-rated supplies it may ask HMRC's permission not to register for VAT.The advantage of registration is that input VAT of £1,489 per month will be reclaimable.£Output tax NILLess: input tax(1,489)VAT repayment due (1,489)(iii) Air ambulance servicesIf exempt supplies only are made the company will not be permitted to register for VAT. NoVAT will be due or reclaimable.(b) Errors on a VAT return of up to £10,000 (net under declaration minus over declaration) may becorrected on the next VAT return without giving rise to either a common penalty or default interest.Other errors may be voluntarily disclosed separately to HMRC. Default interest and, in certaincircumstances, the common penalty, will apply in respect of these errors.BPP House, Aldine Place, London W12 8AA Tel: 0845 0751 100 (for orders within the UK) Tel: +44 (0)20 8740 2211Fax: +44 (0)20 8740 1184。

AnswersProfessional Level – Essentials Module, Paper P3Business Analysis June 2010 Answers 1 (a)This fi rst part of the question asks the candidate to analyse the strategic position at WET. Johnson, Scholes and Whittingtondescribe the strategic position in terms of three aspects; the environment, strategic capability and expectations and purpose.All three aspects are appropriate in the analysis of the strategic position of WET and this classifi cation forms the basis of the model answer. However, candidates could have adopted a number of approaches to this question, perhaps choosing to focus on certain models (such as the value chain) or exploring the organisation through an analysis of the cultural web. All such answers will be given credit as long as they are within the context of WET and consider the external environment, internal resources and capabilities, and the expectations of various stakeholders. In the context of the ACCA Business Analysis syllabus, the strategic position is defi ned within section A of the detailed syllabus.The environmentThe PESTEL framework can be used to analyse the macro-environment. A number of infl uences are discernable from the case study scenario.90% of WET’s income is from members and donors (see Figure 1) who live in Arcadia, a country which has had ten years of sustained economic growth but which is now experiencing economic problems. The scenario reports a decline in Gross Domestic Product (GDP) for three successive quarters, increasing unemployment, stagnant wages and a fall in retail sales. There are also increasing problems with servicing both personal and business debt leading to business bankruptcy and homelessness.These are classic symptoms of a recession and this will have an effect on both individual and business donations and also on membership renewal. WET is 20% funded by donations (see Figure 1). In general, people give more when they earn more and lower earnings will almost inevitably mean lower donations. Furthermore, it could reasonably be expected that a recession places greater demand on certain charities, such as those dealing with social care (for example, homelessness). WET is not one of those charities (and so should not experience an increase in demand), so there must also be a concern that donors will switch donations to social care charities in times of recession. Similarly, current members may not renew their membership for fi nancial reasons.The pressures in the economy also appear to have stimulated the government to change the rules on charity taxation in an effort to raise government revenues. Previously, charities received an income from the government of 20% of the total value of donations and membership fees to reflect the income tax the donor would have paid on the amount paid to the charity.However, the government has declared that this is unfair as not all donations or membership fees are from Arcadian taxpayers or from people in Arcadia who actually pay tax. Consequently, in the future, charities will have to prove that the donation or membership fee was from an Arcadian tax payer. Collecting the donor’s details will place an increased administrative strain on the charity, incurring more costs. The changes are also likely to lead to a fall in income. There are two reasons for this. Firstly, some of the donations were actually from non-Arcadian taxpayers (see Figure 1) and also research and evidence from elsewhere suggests that 30% of donors will not give the GiftHelp details required and so the charity will not be able to reclaim tax.Although the recession in Arcadia has brought economic and political issues to the fore, the wider environment remains very signifi cant to WET. The wetlands that they depend upon are likely to be drying out in a country where rainfall has dropped signifi cantly. This will lead to the loss of the habitat that the charity wishes to protect. The charity must continue to monitor the situation and to support initiatives that should reduce climate change and perhaps increase rainfall.The fi ve forces framework proposed by Porter is usually applied to private profi t-making organisations. However, the framework could also be useful in a not-for-profit organisation, considering the services provided by a sector (however that sector is defined). In such sectors, competitiveness may be about gaining advantage through demonstrable excellence. From WET’s perspective, it needs to consider two overlapping sectors. Figure 1 suggests that 55% of members and 85% of donors give money (through donations or membership) to other charities. In such circumstances, WET is competing for the ‘charity dollar’.However, 45% of members and 15% of donors gave no money to other charities, suggesting that these people are focused on the wetlands cause.If charities as a whole are considered as a sector, then there appears to be a constant threat to WET of new entrants into this sector. The barriers to entry appear to be quite low. The ease with which a charity can be established has been widely criticised, but suggested reforms to the Commission of Charities have been rejected by the Government. However, if wetland preservation is perceived as a sector then the barriers to entry are quite considerable. WET already owns all of the signifi cant wetland sites in Arcadia and, because of climate change, new sites would have to be artifi cially created at great expense. The scenario mentions a charity that has been formed to raise money to create a new wetland. The amount of money pledged so far ($90,000) is not only well below their target but also represents money that may have been donated to WET if this new charity had not been permitted.The threat of substitutes is ever-present. WET competes for disposable income and so is exposed to generic substitution where donors and members decide to ‘do without’ or to spend their money elsewhere, including other charitable causes such as social care, particularly in a recession. If donors are giving to increase their own well-being and to feel good about themselves (‘warm glow’) then perhaps any charity will do, as switching costs are very low. The point has already been made that certain charities will experience higher demand during a recession and so WET will be vulnerable to such competition. However, if donors are committed to the wetland cause then supplier power is high because WET is the only signifi cant wetland charity in Arcadia.The competitive rivalry again depends upon the perception of the sector WET is competing in. In the charity sector as a whole, WET is a small player. Figure 2 illustrates that most money is given to health charities, followed by social care and international causes. However, in the wetland sector, WET is the dominant charity, led by a recognised and charismatic public fi gure.capabilityStrategicThe strategic capability of an organisation is made up of resources and competences. Considering this capability leads toa consideration of strengths and weaknesses, with the aim of forming a view of the internal influences on future strategicchoices.WET have signifi cant tangible resources in terms of the wetlands that they own. They also have experienced and knowledgeable human resources, many of whom give their services for free. They also have a strong brand, associated with a well-known public fi gure. However, although these resources are signifi cant and represent important strengths, the way they have been deployed needs examination. This analysis concerns the competences of the organisation; the activities and processes through which an organisation deploys its resources. The wetlands are uninviting to members, with poor access and poor facilities. The volunteers are disillusioned by poor management and feel that they are not valued. These signifi cant weaknesses appear to be contributing to the organisation’s inability to maintain the threshold capabilities required to retain members.However, it also has to be recognised that WET does have unique resources (the wetlands) that competitors would fi nd it almost impossible to obtain. It also has, in Zohail Abbas, a well recognised public fi gure that potential competitors in the wetlands sector would fi nd hard to imitate. However, these unique resources, do need to be better exploited.A cursory examination of the value chain reinforces some of the weaknesses identified above and identifies others. Withinthe primary activities, service is weak and this is contributing to a decline in membership. Marketing and sales is also an acknowledged weakness of the organisation. Within the support activities, human resource management (particularly of volunteers) has already been identifi ed as a problem. T echnology development (in terms of IT technology) is also a problem with restricted and cumbersome systems causing problems in the primary activities.Summary of Strengths and WeaknessesStrengths WeaknessesOwnership of wetlands Management of volunteersExperienced volunteer work force Wetland access and facilitiesStrong brand Marketing and salesHigh profi le leader Information systemsExpectations and purposesThe two previous sections have considered the infl uence of the environment and the resources available to the organisation.This section looks at what people expect from the organisation. This is particularly signifi cant in WET because it has undergonea signifi cant change in what Johnson, Scholes and Whittington term ‘its ethical stance’. Under Zohail Abbas, the organisationwas shaped by ideology and was ‘mission-driven’, demonstrating a single-minded zeal that charities usually require to achieve their aims. However, charities still have to be fi nancially and operationally viable and WET relies on two important stakeholders;members and volunteers. In his speech at the 2009 AGM Dr Abbas admitted that he had failed to suffi ciently take into account the needs of members (leading to a decline in membership) and of volunteers (leading to a large turnover and scarcity of volunteers). WET now needs to recognise that ‘stakeholder interests and expectations should be more explicitly incorporated in the organisation’s purposes and strategies’ (Johnson, Scholes and Whittington). Any strategy devised by the CEO needs to recognise this shift in ethical stance.Understanding stakeholder perspectives and expectations is an important part of analysing the organisation’s strategic position.Members require better access to wetland sites and more feedback on the activities of the organisation. Volunteers wish to be valued more, treated professionally and be given the chance to participate in decision-making. Having suffi cient, knowledgeable volunteers appears to be necessary if some of the members’ expectations are to be fulfilled. The contribution of volunteers becomes even more significant in a recession, when an organisation might have to reduce paid staff. WET also have to be aware of the potential effects of the recession on individual volunteers. For example, it appears that the failure to pay travelling expenses may have caused unnecessary hardship and led to the loss of volunteers. The CEO must also be aware that the consultation exercise with both members and volunteers will have fostered the expectations of a more open and democratic leadership culture, contrasting with Dr Abbas’s autocratic style.The original mission statement of WET was to preserve, restore and manage wetlands in Arcadia. It might be an appropriate time to revisit this mission statement, to explicitly recognise stakeholder concerns. For example, many members and volunteers are concerned with observing and saving wildlife, not wetlands. This could be explicitly recognised in the mission statement ‘to save wetlands and their wildlife’ or perhaps to ‘preserve, restore and manage wetlands for wildlife and those who wish to observe them’. This would be a mission statement to which most of the stakeholders in WET could subscribe.(b) A number of problems have been explicitly identified in the scenario. However, the swim lane flowchart helps identify twofurther problems, which may themselves explain some of the other documented diffi culties.1. Firstly, the flowchart clearly shows that sales and marketing receive renewal confirmations before payment is cleared.This means that membership cards and booklets are being sent to members whose payments have not yet cleared. Thereceipt of this documentation probably suggests to these members that payment has cleared, so response to the paymentrequest is not necessary. They probably see it as an administrative mistake and ignore the reminder. This would helpexplain the very low rates of people who pay when they receive their payment request. It is not, as the fi nance managersaid ‘an unethical response from supposedly ethical people’, but a problem caused by their own system. Perhaps thosethat do subsequently pay have taken the trouble of checking whether money has been debited to WET from their bank orcredit card account. The consequence of this faulty process is that a signifi cant number of members unwittingly receive afree year’s membership. It may also help explain why a number of members do not receive a renewal invoice at the end of their membership year. These renewal invoices are only sent to members who have been updated on the system after their payments have cleared. If the payment never cleared, then the membership will have lapsed on the system and a renewal invoice will not be raised the following year.2. Secondly, the receipt of a cleared renewal payment is only recorded when the membership details are updated on theMembership computer system by the Membership Department. Consequently, renewal reminders will be sent out to members whose payment is still awaiting clearance. It currently takes the Finance Department an average of fi ve days from the receipt of the renewal to notifying the Membership Department of the cleared payment. There is also a backlog of cleared notifi cations in this department, awaiting entry into the computer system. These members may also receive unwanted renewal reminders. Finally, members who have received a membership card and booklet through the process described in the previous paragraph will also receive a renewal reminder letter. Presumably most members ignore this letter (after all, they have received the new card and booklet) and believe that the charity is inefficient and is wasting money on producing renewal reminders for those who have already renewed their membership. Charities have to be careful about spending money on wasteful administrative processes. It might be these renewal reminders that led to the accusations about the charity wasting money.A number of options can be considered for redesigning the membership renewal process. Some are given below. They range from simple changes, remedying the faults identifi ed in the previous answer, to signifi cant changes in the way WET will accept payment. Credit will be given for answers that suggest feasible amendments and also specify the likely consequences of the change to WET as an organisation, to employees in affected departments and to the systems they use.– Remedy the fault identifi ed in the previous part of the question 1(b) by only notifying sales and marketing of membership renewal once payment has been cleared, not just received. The consequence of this is that a membership card and booklet will only be sent to members who have paid their subscriptions. This should lead to an increase in subscription income because a percentage of members whose payment did not clear fi rst time will now make sure that their payment clears. No changes are required to the membership computer system or departmental responsibilities.– Remedy the second fault identifi ed above, so that renewal reminders are only sent to members who have not responded to the renewal invoice, not to members who have responded but whose payment is still awaiting clearance. This could be achieved by initially updating the membership system when a payment is received. The consequence of this is that renewal reminder letters will not be sent to members who have renewed, but not yet had their payment cleared. This will reduce waste and improve member’s perception of the effi ciency of the organisation. However, it will require a change to the computer system and will also lead to more work for the Membership Department and another handoff between the Finance and Membership Departments. This handoff will introduce the chance of error and delay. The Membership Department already has a backlog in entering the details of members’ renewals where payments have successfully cleared.– A suggested generic process improvement is to reduce the number of handoffs between parts of the organisation by reducing the number of swim lanes. It is perceived that handoffs have the potential for introducing delay, cost and error.A number of options are possible, but perhaps the most obvious is to merge (for the purpose of this process) the functionsof the Finance and the Membership Departments. This is because at one point (and perhaps two, if the previous suggestion is adopted) Finance are simply notifying the Membership Department of an event (payment cleared and, potentially, payment received), which the Membership Department has to then enter into the computer system. The case study scenario suggests that there is a backlog of membership details to enter. This probably results in renewal reminders being sent to members who have already renewed and whose payment has cleared. Merging the swim lanes will require all staff to have access to the computer system, sufficient competency in using it and sufficient numbers to clear the backlog. The likely consequence of the change is that renewal reminder letters will not be sent to members who have already renewed and paid. This will reduce waste and improve members’ perception of the effi ciency of the organisation.Another likely consequence is that staff may need re-training, their jobs redefi ned and any political problems caused by merging two departments will have to be identifi ed and addressed.– Another generic process improvement approach is to make sure that validation takes place as soon as possible. It should be part of the primary activity, not a separate activity as it is at the moment. This approach is particularly appropriate in the checking of payment details in the renew membership process. The early validation of payment could be achieved by giving the member the option of renewing by credit card over the Internet. 60% of the payments are made through credit cards. About 5% of these payments are completed incorrectly and the Finance Department have to raise a fi nance request to ask for the correct details. If a member was able to make a credit card payment over the internet then all errors should be eliminated, as the validation of details will be made straight away by the credit card provider. WET should receive the money sooner (improving the cash fl ow position) and there should be a reduction in fi nance requests. This should reduce costs and perhaps allow a reduction in head count in the Finance Department. However, the internet site would have to be extended to include an e-commerce solution and this will cost money. As well as the initial cost, the provider of the fi nancial solution will also charge a fee for each transaction.– The fi nal option presented here is a more radical solution that is currently used by many subscription organisations. The principle is that renewal will happen automatically unless the member specifi cally asks for it not to. They have to ‘opt out’, rather than ‘opt in’ as under the present solution. Automatic renewals could initially charge the credit card used for the previous year’s membership. Renewals that required a positive response would only be sent out to those who paid by cheque. Renewals to credit card customers would remind them that the card would be debited on a certain date, but that no action was necessary to secure another year’s membership. This should help address the retained membershipissue discussed in the scenario, based on the fact that opting out is much harder than opting in. WET might also consideroffering payment by direct debit, using similar process logic to that used for credit cards. In a bid to reduce members whopay by cheque, discounts may be offered for paying by direct debit or automatically triggered credit card transactions. Aswell as increasing subscription income from higher member retention, the solution should lead to improved cash fl ow andreduced administrative costs. Changes to the membership computer system will have to be specifi ed, implemented andtested.(c)The incoming CEO of WET has identifi ed the better acquisition and management of members, volunteers and donors as animportant objective. She has identifi ed them all as important customers of WET and she sees e-mail and website technology as facilitating the acquisition, retention and exploitation of these customers. In discussing customer relationship management, Dave Chaffey (see syllabus Reading List) considers customer acquisition, customer retention and what he terms customer extension. This classifi cation is used in this model answer. However answers that still make the same points, but do not use this classifi cation, are perfectly acceptable.acquisitionCustomerCustomer acquisition is concerned with two things. The fi rst is using the website to acquire new customers (donors, members and volunteers). The second is to convert customers acquired through conventional means into on-line customers.When people visit the WET website they may already be committed to becoming a member, a volunteer or giving a donation.For these people, the process of enrolment or donation must be completely clear and complete. There must be no break in the process which might allow doubt or hesitation and lead the participant to withdrawing. The fi nal two options suggested in the answer to question 1(b), would provide such a complete solution. Customers enrolling or donating on the website might also be given inducements, such as a reduced membership rate or a free book.People who visit the website and are still uncertain about joining or donating might be induced to take part in an offer, which requires them to enter basic details (such as name and e-mail address) in return for some service or product. For example, free tickets for an open day or discounted prices on selected books. These e-mail details are essentially sales leads and become the basis of selected future e-mails encouraging recipients to join or donate. They might also be used (if a phone number is requested) for telephone sales calls.Incentives may also be required to convert current customers to the web site. A typical approach is to define a members’ area where members have access to various resources and offers. For example, a webcam showing live action from selected wetlands. Existing members would also be encouraged to renew membership on-line, as discussed in the previous part question.retentionCustomerCustomer profiling is a key area of both acquisition and retention. WET needs to understand the needs and interests of individuals and target them accordingly. At the broader level, customers can be differentiated into segments, such as prospects, members, volunteers and donors. These segments will be communicated to in different ways and this can be refl ected in the website, for example, by establishing different areas for volunteers and members. However, profi ling can also take place at the individual level, reflected in personalised e-mails to individuals that reference known interests and so encourage continued participation in WET.On-line communities are a key feature of e-business and may be created to refl ect purpose, position, interest or profession.T wo of these communities are particularly relevant to WET. The primary one is of interest, creating a community for people who share the same interest or passion for wetlands and the wildlife they support. This could be created as an extension of the current WET website or as an independent site, where criticisms of WET itself could be posted. WET should either sponsor or co-brand such a site. Communities provide an opportunity for members and volunteers to actively contribute to WET and build up loyalty, making continued membership more likely. They also provide WET with important feedback and ideas for improving their service to both members and volunteers. WET themselves might also wish to get involved in communities of purpose where people are going through the same process or trying to achieve a particular objective. For example, there are websites dedicated to providing a one-stop-shop for those wishing to make donation to charity.Customer extensionThis has the aim of increasing the lifetime value of the customer by encouraging cross-sales. This may be within the scope of WET itself, for example, by selling WET branded goods. However, it is also likely to include links and advertising on the WET site for associated products. WET will receive income from direct advertising fees or from a commission in the sales generated from the site. For example, book purchases may be handled through a specialist book site (leading to commission payments) or binoculars purchased from a manufacturer (payment for advertising space). Direct e-mail is also an effective way of telling customers about the products of other companies and can also be used to publicise promotions and new features and so encourage visits to the website.2 (a)The acquisition of EVM can be analysed using the success criteria of suitability, acceptability and feasibility.Suitability is concerned with whether a strategy addresses the issues identifi ed when considering the strategic position of the company. In general terms the acquisition appears to make sense. The market is mature and competitive in Ambion, pushing down margins. These margins are further eroded by a government that is hostile to road transport resulting in high taxation on fuel, road taxes linked to carbon emission and restricted working practices. The acquisition of EVM provides an opportunity for Swift to exploit their core competencies in a different geographical market where demand is rising, the national government is investing in road infrastructure and competition is immature. The increased size of the group will further allow Swift to exploit economies of scale when purchasing trucks and other equipment.Concerns around suitability surround the potential clash of cultures between Swift and EVM. Swift has no experience of acquiring or running foreign companies. It has no experience of trading in Ecuria. Furthermore, although EVM is now in private hands, it may be possible that the work practices and expectations of employees may still reflect the time when they were working for the central government. Although altering these practices may give scope for even greater profi tability, it may lead to labour disputes that harm the service and reputation of the company. Swift wishes to acquire this company and adopt the practices, principles and technology of the Ambion operation. This may lead to confl ict that they may fi nd hard to resolve.Acceptability is concerned with the expected performance of a strategy in terms of return, risk and stakeholder reactions.Return: EVM delivers a very similar (18%) Return on Capital Employed (ROCE) to Swift T ransport. This appears to be a strong performance for the sector, and should certainly be acceptable to the Swift shareholders. The gross profit margin (20%) is higher than Swift, but the net profi t margin (7.5%) is lower. This may support some of the concerns discussed under suitability.The company may still be carrying high costs from its days as a nationalised company. Swift presumably believes that it can improve the net profi t margin by implementing competences gained in the Ambion market.Risk: Both the current liquidity ratio (1·14%) and the acid test ratio (1·05%) are lower than the Swift equivalents and Swift will need to look at this. The introduction of Swift’s practices may help reduce trade payables. The gearing ratio (30%) for EVM is much lower than Swift and perhaps refl ects a more conservative approach to long-term lending and a refl ection of the fl edgling capital markets in the country. However, the interest cover ratio (5) is half that of Swift, perhaps refl ecting lower profi tability and higher business taxation.Stakeholders: Joe Swift and his family are the major stakeholders in what is still a family-run private limited company. It is unlikely that there will be any opposition to the acquisition from shareholders. However, stakeholders such as drivers might be wary of this strategy and also the government, outspokenly criticised by Joe, may also respond in some way. For example, by imposing taxation on foreign investment.Feasibility is about whether an organisation has the resources and competencies to deliver the strategy. It appears that Swift does, as funds are in place and the competences are what are partly driving the acquisition.(b)In his book The Competitive Advantage of Nations, Michael Porter suggests that there are inherent reasons why some nationsare more competitive than others, and also why some industries within nations are more competitive than others. He suggests that the national home base of the organisation plays an important role in creating international advantage, something that will be very important to Joe Swift. He identifi es four main determinants of national advantage and arranges these as a diamond, with each of these determinants interacting with and reinforcing each other. T wo further determinants, chance and government, are discussed outside of the diamond in terms of how they infl uence and interact with the determinants inside the diamond.This model answer uses Porter’s diamond as its basis. However, credit will also be given to candidates who use an alternative appropriate framework or model.The four main determinants are:The nation’s position in factor conditions, such as skilled labour or infrastructure, necessary for fi rms to compete in a given industry. The acknowledged work ethic of the people and the investment in transport infrastructure by the government are signifi cant factor conditions in Ecuria.The nature of the home demand conditions for the industry’s product or service. Home demand influences economies of scale, but it also shapes the rate and character of improvement and innovation. In Ecuria, the move to a market economy has stimulated a rapid growth in the transport of goods. The Ecurian people are traditionally demanding in their standards. They have a passion for precision and promptness and this has shaped the operations of EVM.The presence or absence of related and supporting industries that are internationally competitive. Competitive advantage in certain industries confers potential advantages on firms in other industries. Porter suggests that the ‘Swiss success in pharmaceuticals was closely connected to previous international success in the dye industry’. There is no evidence in the case study that Ecuria has internationally competitive industries related to logistics. Hence, it is the absence of these that is signifi cant when considering this determinant.The fi nal determinant is fi rm strategy, structure and rivalry. This concerns the conditions in the nation governing how companies are created, organised and managed. It also considers the nature of domestic rivalry. EVM was created by nationalising the state-run haulage system. For the fi rst few years of operation it had few competitors. The nature of the capital markets makes it very diffi cult to raise fi nance in Ecuria. Consequently, most of EVM’s competitors are small, family-run companies who offera local service. Porter suggests that there is a strong relationship between vigorous domestic rivalry and the creation andpersistence of competitive advantage in an industry. There is little evidence of this emerging in Ecuria.。

AnswersProfessional Level – Essentials Module, Paper P3Business Analysis December 2010 Answers1 (a)ShoalFishA PESTEL analysis of ShoalFish would focus on the fact that it is fishing in an area where fish stocks are rapidly declining(environmental) and it is increasingly exposed to government intervention and restrictions (political). It is a relatively small player (12% market share) in a large, but declining market place (5% over two years). Profi ts are declining, although ShoalFish appear to have arrested the decline in the profi t margin. The 2009 gross profi t margin (4·9%) shows an increase over the 2008 fi gure (4·7%). This may mean that the company has been able to bring operating costs in line with the declining turnover.In terms of the Boston Box, it has the characteristics of a dog, a company with a small market share in a declining market.However, Shoal plc perceives that there are important synergies between ShoalFish and the other companies in the Shoal plc portfolio. For example, it helps secure a signifi cant proportion of the raw materials required by ShoalPro. ShoalPro is also ShoalFish’s main customer, accounting for 40% of the company’s catch. ShoalFish also has an intended role following the purchase of the Captain Haddock group of restaurants. Shoal plc would like ShoalFish to directly supply the Captain Haddock restaurants and so potentially reduce raw material costs at Captain Haddock.Shoal plc needs to look carefully at the viability of maintaining this fl eet. They are operating in an area where owner-skippers are very common (almost half of the boats in the western oceans are owned and operated by the boat’s captain). There may be an opportunity for ShoalFish to sell, lease or rent their ships, perhaps to individual owners, with the promise of guaranteed sales to ShoalPro (and potentially Captain Haddock). Alternatively, they could tolerate declining performance from this part of the portfolio, in the knowledge that it forms an important part of the supply chain for other companies in the portfolio.ShoalProShoalPro is a profitable and expanding organisation. A significant percentage of its raw fish supply is currently provided by ShoalFish, but this percentage is declining as it increasingly processes fish for other companies. It is in a mature, but still expanding (+2% from 2007 to 2009) market-place where it holds a signifi cant (40%) and slightly increasing market share.Gross profi t margins are improving slightly (from 10% in 2007 to 10·6% in 2009), suggesting that costs are increasing at a slower rate than revenues.Its consistent profitability would classify this business, using Boston Box terminology, as a cash cow. A company with a signifi cant market share in a low growth market.A PESTEL analysis would focus on the fact that ShoalPro factories are in a region which attracts national grants due to highlocal unemployment (political and economic). This reduces operating costs and the persistence of high unemployment suggests that a local skilled workforce is still accessible to ShoalPro (socio-cultural). Analysis suggests that ShoalPro is an important part of the Shoal plc portfolio and should be retained and maintained.ShoalFarmShoalFarm is a relatively new acquisition. It currently has a relatively low market share (10%) in an expanding market-place.ShoalFarm is itself growing (+12% from 2007 to 2009), but not as fast as its market (+20% in the same period). A PESTEL analysis would reveal a market-place that is perceived as ethically acceptable, stressing the conservation of fish supplies (socio-cultural). It seems likely that this will increase in importance in the future although the diffi culty of fi nding potential sites (environmental) may be a significant factor. Gross profit is high (14% in 2007, comfortably out-performing ShoalFish and ShoalPro) but declined in 2008 (12·7%), recovering slightly in 2009 (13·3%).ShoalFarm may also have a signifi cant role to play in providing raw materials for both ShoalPro and the potential acquisition – Captain Haddock restaurants. In terms of the Boston Box classifi cation, ShoalFarm is probably a question mark or problem child. It needs increasing investment to ensure that it becomes a key player in a significant market-place. If Shoal plc is prepared to do this, then the recommendation is that they should expand and develop. If they do not – and the potential synergies with Captain Haddock are not realised – they may wish to divest.Overall, the three companies can be seen as integrated parts in a comprehensive value chain. Confl icting environmental forces are at work, on the one hand reducing the level of dependency between the companies and, on the other hand, reinforcing the competitive advantages (synergies) of being in a vertically integrated group. The potential acquisition of Captain Haddock could further enhance these advantages but only if the correct inter-fi rm trading relationships are established.(b) (i)Shoal plc recognises that there is no ‘one right way’ to manage change. The success of any planned change programmewill depend upon an understanding of the context in which the change will take place. Balogun and Hope Haileyhave highlighted a number of important contextual features that need to be taken into account when designing changeprogrammes. These features are used as a basis for this model answer. However, other frameworks that recognise thecontext that changes takes place within could be used by the candidate and appropriate credit will be given.hastime to complete the acquisition and effect the strategic change necessary. The decline in Captain littleplcShoalHaddock’s turnover and profi ts is increasing dramatically. The resignation of the chairman and managing director of thecompany was triggered by concerns about breaking bank covenants. If Shoal plc does acquire Captain Haddock thenstrategic change will have to be implemented quickly.Shoal plc will need to put into place policies that help them preserve the aspects of Captain Haddock that need to beretained for future success. It is recognised that the employees and the training they receive are fi rst rate. Steps need to beput in place to ensure that these employees remain within the company. Similarly, the Captain Haddock brand is strongand needs to be re-affi rmed.Change is usually easier if there is a diversity of experience, views and opinions within the organisation. This is notdiscernable at Captain Haddock. The suggestion is that most employees are recruited directly from school or universityand then remain within the Captain Haddock training programme as they progress through the company. There is verymuch a policy of ‘recruit from below’. In such circumstances it is unlikely that norms and practices will be challenged.A homogenous internally shared view was developed that Captain Haddock did things the right way, whatever waschanging in the world outside. Shoal plc will have to be sensitive to this, as well as recognising that it will need to bringthe required diversity of thinking to the company.Capability is concerned with the extent or experience of managing change in the organisation. Within Captain Haddockthere appears to be little experience of such change. Indeed the preservation of established norms and practices was thefocus of management and the supporting training. In contrast, Shoal plc have experience of managing change and this isa major capability that it should bring to Captain Haddock. However, it has to be recognised that this capability has notbeen tested in the restaurant sector and Shoal plc will have to be sure that their capability is applicable to this sector.capacity of an organisation for change considers the resources available to support change. Change may be costly, Theboth in real fi nancial terms and management time. Captain Haddock has little capacity for change from its own resources.So, this is again something that Shoal plc will bring to the company. Substantial investment will not only be requiredto improve Captain Haddock’s financial position, in terms of fulfilling bank covenants, but also to finance the changeprogramme necessary within the company.There appears to be little doubt that Captain Haddock is ready for change. T wo senior members of management whocould have been the focus for some resistance to change have left the company and employee representatives are keenfor someone to come in and ‘effectively lead employees who have become increasingly demoralised by the decline of thecompany’. Shoal plc should acquire an organisation that is receptive to appropriate change.It is necessary to identify people in the organisation who have the power to effect change. Again, this will be a keyresponsibility of Shoal plc if they acquire Captain Haddock. They must give the appointed management suffi cient powerto implement the required changes.So, in summary, Shoal plc will be faced with ensuring that many of the contextual requirements for successful changeare put in place. They will need to provide management with appropriate capability and diversity and then give them thepower and capacity to effect required changes. They will have to move quickly to preserve Captain Haddock’s strengths,but they will fi nd a workforce that is receptive for change.The final contextual feature that needs consideration is the scope of change. The type of change required at CaptainHaddock can be viewed in the context of the following model.changeofScopechange Realignment TransformationNatureofIncremental Adaptation EvolutionRevolutionBig Bang ReconstructionAdaptation is change that can be accommodated within the current paradigm and can be introduced incrementally in theorganisation.Reconstruction is change that may be rapid and create upheaval in the organisation but which does not fundamentallychange the underlying paradigm.Evolution is a change that does require a paradigm change but one that can be introduced over timeRevolution is a change that requires rapid change associated with a change in paradigm.Reconstruction appears to fi t the situation at Captain Haddock.(ii)This part of the question can be answered in a number of ways and all legitimate approaches will be given credit.However, it is suggested that the answer should consider:– Focusing on profi table and/or core activities– Divesting non-profi table and/or ill-fi tting activitiesmanagementsenior– Changingstakeholdermanagement– Effectiverestructuring.– FinancialThis model answer uses the structure suggested by Johnson, Scholes and Whittington for implementing a turnaroundstrategy. Change is required quickly but there is no need to radically change what the organisation is doing. There is aneed for a realignment of strategy rather than a fundamental change of strategic direction. It has already been recognisedin the previous answer that Captain Haddock requires reconstruction. This is often associated with a turnaround situationwhere there is a need for structural changes to deal with a decline in financial performance and changing marketconditions. In a turnaround situation the emphasis should be on rapid change and rapid cost reduction and/or revenuegeneration. Thus Shoal plc should be aware of some of the main elements of a turnaround strategy as they will needthese if they acquire Captain Haddock. These main elements could form the basis of a strategy for change to return thecompany to profi tability.(1) The change strategy might commence with crisis stabilisation with a short-term focus on cost reduction and revenueincrease. One of the synergies identifi ed by Shoal plc (the provision of fi sh directly to Captain Haddock restaurants)should aid cost reduction. There is evidence that focusing on reducing operational costs is a signifi cant factor in asuccessful turnaround strategy.(2) Implementing management changes at the top level. The resignation of the chairman and managing director ofCaptain Haddock has already facilitated this. Their resignation will also support the reduction of costs. The reductionof the costs of senior management is a further characteristic of a successful turnaround strategy.(3) Gaining stakeholder support. It is vital that key stakeholders are kept informed during the change process. A clearassessment of the power of different stakeholders will be vitally important. Evidence from the scenario suggests thatemployees are supportive of change. The banks should also welcome the acquisition by a large and well-establishedcompany such as Shoal plc.(4) Shoal plc will have to clarify target markets and re-establish the Captain Haddock brand. There is evidence that thecompany has unsuccessfully diversifi ed into new market-places which did not deliver profi ts. The company has toget ‘back to basics’ and re-establish itself in its traditional market-place.(5) Captain Haddock will need to be re-focused on core activities and products. It may be possible to dispose of the landbought for investment. Clarifying the target markets provides the opportunity to discontinue products or services thatare not focused on those markets.(6) Financial restructuring of Captain Haddock is necessary and is part of the capability that Shoal plc will bring to thecompany. Evidence suggests that Captain Haddock should be delivering gross profi ts of about $11million per year,so making the $15million investment a relatively modest outlay.(7) Shoal plc will need to prioritise critical improvement areas, delivering quick and signifi cant improvements.Finally, Shoal plc need to be aware that a successful turnaround strategy should focus on getting the existing business right, rather than quickly diversifying into new markets and businesses.(c)Portfolio managers, synergy managers and parental developers represent three corporate rationales for value creation in amulti-business organisation as suggested by Johnson, Scholes and Whittington. The distinction between the three is considered here.Portfolio managers act as an agent on behalf of financial markets and shareholders. They seek to increase the value of the companies in their portfolio more efficiently and effectively than financial markets could achieve. They seek to acquire under-performing or under-valued companies and to improve their performance so that they can later be sold at a premium.In many instances, poorly performing parts or businesses of the acquired company are sold off as part of performance improvement. The key issue for most portfolio managers is the opportunity to extract value from a business. The nature of that business, the market it is operating in and its relationship to other businesses in the portfolio is relatively unimportant. Portfolio managers manage businesses with a low cost centre and do not intervene signifi cantly in the running of each business in the portfolio. Instead, they set fi nancial targets for the senior executives of those companies, with high rewards for those executives who achieve their targets. The value-added activities of a portfolio manager are usually restricted to investment, setting expectations and standards and for monitoring performance. The profi le of a portfolio manager does not fi t the philosophy of Shoal plc.Johnson, Scholes and Whittington claim that synergy is often seen as the raison d’etre of the corporate parent, with value being enhanced across the business units in a number of ways. Underpinning this approach is the belief that the whole is worth more than the constituent parts. Johnson, Scholes and Whittington particularly identify the sharing of resources or activities;for example, a common brand name (as in the case of Shoal plc) may provide value to different products within different businesses. There may also be common skills or competencies across businesses. For example, expertise built up in the politics of fi shing is likely to be transferable throughout the Shoal plc businesses.Shoal plc also sees the synergy in terms of one business being a customer of another. For example, guaranteeing a supply of raw material or as a guaranteed customer of a product. This may be problematic because it could lead to ineffi ciencies and confused objectives within each company. The ‘supplying’ company may not control costs or ensure quality suffi ciently because it knows it has a guaranteed customer for some of its products. Similarly, the ‘purchasing’ company might not be able to meet profit objectives because of the cost and quantity of the raw material it has to purchase from its related supplier. Business managers are usually rewarded on the performance of their business unit, but under this strategy they are being asked to co-operate in something that could compromise the performance of their business unit. As Johnson, Scholes and Whittington suggest, the manager of the business unit might respond by asking ‘what’s in it for me? and they may conclude that there is very little’. There is also a concern that Shoal plc knows a lot about sourcing and processing fi sh, but not much about the restaurant industry. It may be that Captain Haddock is quite different to other companies in the portfolio and so the hoped for synergies may not appear. However, despite these reservations, it is clear that Shoal plc’s overall corporate philosophy is that of a synergy manager.Finally, the parental developer uses the competencies of the parent to add value to businesses in the portfolio. So, in this instance, the parent company is confi dent about its resources and capabilities and wishes to use these to enhance the value of the businesses in the portfolio. For example, the parental developer may have a brand name that is recognisable throughout the world and is associated with value and quality. Such a company needs to identify businesses which are not currently fulfi lling their potential but could if they were associated with a well-known brand. In effect, their brand name brings these companies toa wider audience who automatically assign the values of the parent to those of the acquired company. For parental developers,achieving synergies between companies in the portfolio is not a priority. The focus is on providing the companies in the portfolio with the competencies of the parent. This is not really the approach of Shoal plc. Developing strategic capabilities, achieving synergies and transferring managerial capabilities are not value-adding activities of a parental developer.2 (a)The main drivers for the adoption of e-business at TMP are:– Cost reduction, specifi cally raw material costs (the cost of paper) and distribution costs to bookshops.– Improved profi t margin, perhaps achieved by removing the bookshop as an intermediary.– Increased revenue, increasing sales (as well as profi t margins) is an important objective.– The desire to keep up-to-date (exemplifi ed by the marketing director) and hence to avoid losing market share to businesses prepared to embrace e-business.– Increased ecological concern about the use of timber for paper manufacture. The trees used to provide the timber are becoming increasingly scarce.– People, in the shape of the marketing director and the graduate recruited to develop the website.The main barriers to the adoption of e-business at TMP are:– Concerns about th e cost of developing th e website, particularly wh en revenue and profits are decreasing. Marketing expenditure has been reduced and this is likely to continue.– Concerns that it will destroy the relationship with bookshops and those sales will decrease overall as a result. Destroying existing channels is often a major barrier to change.– Lack of technical ability within the company to develop and maintain the website and the impact this may have on its long-term viability.– Concern about fraud and piracy. This may be within the context of the fi nancial transactions of e-commerce. It may also refl ect concerns about the pirating of books, leading to either cheap printed versions being produced and sold in localmarkets or to illegitimate copies being sold and distributed on the web.– Other directors could be perceived as a barrier to the adoption of e-business.(b)ProductAt present, TMP offer conventional physical books. E-business may provide opportunities for either replacing or augmenting this product. For example:– Replacing the book with an electronic alternative that customers can read directly from the screen, view through an e-book reader or print off at their own cost. This may allow the range of products to be increased, introducing books thatwould be uneconomic to produce conventionally.– Augmenting the product by providing supplementary services and features. For example, many text books now have an associated website that includes further case studies, exercises, solutions, simulations etc. This may be particularlyapplicable to management texts where readers often require further information.Using e-business to change the nature of the product should help reinforce two of the drivers identifi ed in the fi rst part of this question. It should help reduce raw material costs as well as helping the company meet environmental targets. Augmenting the product should help deliver a better quality product to customers.E-business also offers opportunities for extending the product range, perhaps offering (through intermediaries) management training, fi nancial advice and other related services.PriceAt present TMP largely sells through bookshops and so the TMP price has to refl ect a profi t margin for the bookshop. If TMP exploits e-business to develop a channel that eliminates bookshops, then it should be able to simultaneously discount the price of the book and yet still improve their profi t margin. E-business may also be an opportunity to experiment with differential pricing. The scenario notes that overseas sales are low because of the relatively high sales price of books. TMP may be able to combine differential pricing (in local currencies) with electronic alternatives to find a product th at is saleable in th ese markets.TMP has to be aware of any price-comparison websites and be prepared to monitor costs on these sites and react accordingly.They also have to be aware of large established channels, such as Amazon. Such sites will expect keen pricing, but will also pay commissions on books sold through the site.Finally, TMP might seek an alternative price strategy, based for example on subscribing to the site, rather than selling books.A ‘book’ may become a continually updated web resource that customers pay to use on either a one-off or continuing basis.There is no need for them to actually own the book themselves. TMP therefore becomes a virtual library.Direct pricing to customers also provides th e opportunities for special offers, pre-publication prices and oth er deals. For example, special discount prices on related books can be offered to customers who have placed an order for a specifi c book.PromotionAt present, promotion is restricted to a custom-built display case at booksh ops and full-page display advertisements in magazines and journals. Such promotion reflects a conventional ‘push’ approach to marketing that focuses on the product rather than the customers. If the website records the details of visitors, then the company can identify potential customers for its products and target them in mail-shots and on-line suggestions. For example, customers who have bought certain titles may have others suggested to them when they next visit the site. Many sites also make buying suggestions based on the behaviour of other customers, for example displaying ‘other titles which have been bought by customers who have bought this book’.E-business will require the company to consider both its online and offl ine promotion. TMP may be able to reduce its offl ine expenditure, cutting back on advertising. In its place it migh t spend elsewh ere, particularly in making sure th at it figures prominently in search engine listings. Links to other sites should also be considered, allowing promotion of TMP books on related sites. For example, internet sites providing management advice, information and glossaries may have a link to the TMPsite. TMP pays commission to the site on sales made through such links. Banner advertising might also be considered on such sites. A similar approach might be used with academic websites where a TMP book is recommended reading for a course.PlaceBookshops have limited reach, although they do provide the facility for the potential buyer to handle the book (see physical evidence). The display advertising has unpredictable reach. Circulation fi gures are usually provided by journals and magazines but this does not give any information on how many people actually read the advertisements in question. The scenario suggests that both bookshops and journals appear to have declining reach, based on statistics about their closure. The internet has global reach. The relatively small percentage of books currently sold outside Arcadia is attributed to the cost of those books.However, it may be that the rest of the world is simply unfamiliar with TMP’s booklist, a shortcoming that will be addressed by the internet siteIn wider e-business terms, a consideration of place will also lead to TMP considering whether it is economic to continue printing in Arcadia which is a high-cost economy. The printing works were established 50 years ago and it seems likely that cost-savings could be gained by printing and distributing the books in lower labour cost economies.Physical evidenceOne of the problems in buying books is the ability to look inside those books before purchase. Often titles are insuffi cient to make a purchasing decision. One of the advantages of the bookshop is that the potential buyer can physically inspect the goods, looking at the content in detail to ensure that it meets their needs. In contrast, physical evidence is not possible at all through display advertising in a journal.On the website, it would be possible to allow the potential buyer to view the contents of the book in detail and (usually) one physical chapter. This so-called ‘look inside’ facility allows them to base their buying decision on some (but not all) physical evidence. Further evidence can also be provided by unsolicited recommendations and reviews from other customers.Feedback, comments and rating systems are typical features on a website. These are rarely available through the bookshop.The bookshop employees have rarely read all the books they sell and, if they have read the book, are probably biased towardsa sale. Sometimes, reviews have been placed in the book, often from a previous printing or edition. However, these are onlythe ones sanctioned by the publisher. Unsolicited references are one of the advantages of the website (as long as they are good!).The problem of physical evidence can also be addressed by seeing the book as a website resource rather than a physical entity.If the reader pays for access, then very little expenditure is likely on a book that does not fulfi l the reader’s requirements and expectations.3 (a)The cultural web is a representation of the taken-for-granted assumptions, or paradigm, of an organisation. The questionspecifi cally references the cultural web, but any framework that is appropriate for understanding the culture of an organisation can be used.Symbols such as logos, offices, cars, titles, language and terminology are a shorthand representation of the nature of the organisation. At Frigate, the adoption of the term ‘Commander’ by its managing director, Ron Frew, and his use of naval terminology is indicative of how he wishes to be perceived and the way he wants the company to run. Indeed the name of the company itself refl ects his naval obsession. The main symbol of his success is the motor cruiser that Frew owns and moors at the local port. The irony is that Frew actually has no naval experience. He is acting out a stereotype of how he perceives naval life to be.Power structures are also likely to infl uence the key assumptions of an organisation. The most powerful groupings within the organisation are likely to be closely associated with core assumptions and beliefs. At Frigate, power is centred on one person.Leadership comes from a person who holds strongly held views, opinions and beliefs.The organisational structure is likely to refl ect power and show important roles and relationships. At Frigate, there is little formal structure and Ann Li’s attempt to put one in place was opposed.Control systems, measurements and reward systems emphasise what is important to monitor in the organisation. Frew is primarily concerned with cost control. Emphasis is on punishment (making deductions from wages for late arrival), rather than reward, which fi ts his naval stereotype. There appear to be few formal process controls and relationships with both customers and suppliers are confrontational. Ann Li’s attempt to install formal controls throughout the organisation was resisted by Frew.Routines and rituals defi ne the ‘way we do things around here’. For Frew there is a distinction between the routines of staff (must arrive on time, minimum holidays with no fl exibility) and the rules that apply to himself – fl exible working, long holidays, the expectation that employees will help him with his personal life.stories told by members of an organisation are usually concerned with success, disasters, heroes, villains and mavericks. TheIt appears that Frew is the hero, seeing off lazy staff, unscrupulous suppliers (trying to sell me inferior quality goods for higher prices), problematic customers (moaning about prices and paying later and later) and bureaucratic offi cials (squandering my hard-earned money). These are identifi ed as the villains. He even extends his stories to society as a whole, believing that a period working in the navy would do everyone good.paradigm summarises and reinforces the other elements of the cultural web. Underpinning all of this is companytheFinally,Frew’s belief that the company is run for his own gratifi cation and that of his immediate family. The benefi ts he receives and the lifestyle he enjoys is his reward for being a risk taker in a hostile environment which is always trying to limit him. He appears。