Charlotte Alexander

Scenario
Assignm
ent Help

Btech HND
Assignment

In todays scenario each and every person

wants to start its own business assignment.
As shown in the given scenario Freddy Patel
wants to initiate its own business and wants
some relevant suggestion regarding its
financial activity.

Introduction
In todays scenario each and every person wants to start its
own business assignment. As shown in the given scenario Freddy Patel
wants to initiate its own business and wants some relevant suggestion
regarding its financial activity. In this research report all the sources of
finance which are available for a sole trader Freddy Patel, will be
discussed and also analysed their implication to the new business which
is going to be started. In this report the significance of the financial
planning will be assessed and the required sources which are necessary
for

taking

proper

decision

regarding business

operations management are identified. In order to manage the fund, it

is suggested that Freddy Patel should prepare an organize cash budget.
It is important to take proper decision regarding the prices of the
products and that will also be discussed in this report. The comparison
of ratios is done in order to identify the better position of the
organization.

Task 1

Identify the sources of finance available to a business like Freddy

Patel. You need to do research in order to identify sources of finance

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In this scenario Freddy Patel is a sole trader and wants to start a new
business. For that purpose there are numerous sources available to him.
Bank overdraft bank overdraft is a facility of providing funds by the
bank to its customer. It is a credit extension from a particular financial
institution when an individuals bank account reaches to Zero. It is a
facility in which a person can withdraw money from the bank even if its
bank account has no money. Basically, in this source bank lends money
to the customers. So, from this source Freddy Patel can borrow some
money for stating its new business.
Preference Share Preference share is the debt which is taken for the
long period of time. These shares have a fixed dividend rate and which
is decided at the time of its issue. The holders of preference share do not
have rights of voting. It is also considered as the good source to get
funds for the investment purpose.
Share capital in order to initiate a business an individual needs a huge
amount of money in that case this sources is very important as it
provides fund for the long period of time. Share capital is acts like a
fixed funds that can be used in the business operations.
Bank loan - It is another source of finance for the long period of time.
Bank provides loan to the customers and he needs to pay the interest for
that in instalment within a particular period of time. When taking loan
form a bank an asset needs to be kept reserved with the bank as
security.
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Lease This is the better source of finance. In this source an asset is

owned by a person called as Lessor and the person who uses it called as
lessee. A person who uses the asset would has to pay instalments
accordingly, which is predecided and when the leasing time period
comes to an end then lessee has to return the goods the Lessor back.
Debenture it is a form of loan that is secured in opposition to a
particular asset or the whole businesss assets. It has a fixed interest rate
which must be paid at a fixed date.
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Assess the implications of the different sources of finance to a

business like Freddy Patel
On the basis of given scenario, Freddy Patel wants to open a new
business and for that business some sources of finance have been
suggested above and here are the implications of these sources.
Share capital It requires only business registration. In this source a
person who gets funds has the possession to keep the profit and control
ownership of the business. He becomes partners in the business profit
and loss of the business.
Bank loan - For getting the funds through bank Loan requires legal
documentation. It includes documents such as position of an asset, no
dues, position of debtors and stock, etc. if the amount which is taken as
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a loan will not be payable on a given time then the deposited security
will be retained by the bank.
Lease leasing requires some legal documents having several terms
and conditions which needs to be done between the asset owner and the
business. Lessee continuously keeps paying the interest of the goods in
equal instalment till then he uses the asset.
Debenture In order to issue a debenture also requires some legal
documentation. Freddy Patel needs to register its business for acquiring
money. If the amount of debenture is not paid on time, then bank can
get its fund by selling the organizations assets.

Evaluate appropriate sources of finance for a business project like

Freddy Patel
Bank overdraft it is the facility in which Freddy Patel can acquire the
funds from the bank when it has nil balance in its account. There is
some limit of the bank on the amount which could be withdrawn. This
amount limit is to be set by the bank itself. On the basis of advantages
and disadvantage its appropriateness is analysed.
Advatange -

It has not much legaldocumentation as compared with the other

sources. It is a easy method to get funds.

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It is a flexible source of fund as a person can get whatever amount

of money he wants whenever ( up to the limit which is decided by the
bank) in less period of time.
Disadvantages

It has a high rate of interest in comparison to the other financial

source.

If person fails to make payment on time then bank forfeited the

asset which is submitted to the bank as security.
Share capital The feasibility and appropriate of this source can also be
analysed with the help of its advantages and disadvantages.
Advantages

This sources has no dues, no bankreuptcy, etc.

Ownership will only be transferred to Freddy Patel when the

shares will be transferred.
Disadvantages

It has limited profit as share values will not be increased more

than its authorised capital,

In this sources there is no profit and no profit situation.

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Bank loan If Freddy Patel uses this sources, then it leads to some
positive as well as negative impact to the business.
Advantages

By using this source provides benefits of Tax on repaying the

Interest of loan in a year.

Freddy Patel can get large amount of money through this source.
Disadvantages

It has a lot a paper work and legal formalities.

Asset that is given as security to bank can only be acquired back

after repaying the amount of loan.
Lease leasing also has some positive and negative impact, that are
described as below:
Advantages

Freddy Patel does not need to buy the asset when it can be rented
out.

This source does not have any limited time period of repayment of
the lease. It can be from one year to hundred years.
Disadvantages
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There is not any benefit of Tax by using this source.

Overall rental cost is higher than the actual cost of asset.

Task 2
2.1 Analyse the costs of different sources of finance to a business like
Freddy patel
Finance sources provides benefit to both the party who provides the
funds and who gets the funds. Here is some analysis is done on the basis
of cost of these sources.
Bank overdraft If Freddy Patel acquires funds from this sources, then
bank charges some amount of interest to Freddy. This source can be
used when a person needs urgent funds as it has a higher rate of interest
as compared to the other sources. There is no such Tax benefit of using
this source.
Share capital share capital is the fund which is owned by the
organizations owner. In this scenario Freddy Patel is the owner and if
loss occurs in the business strategy will be beared by him only. If this
sources is used by the Freddy then he must pay dividend as a cost for
share capital. Divendend is provided to him after deducting all the
expenses. If company generates no profit then no dividend is to be paid.

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Bank loan This is considered as the best source to Acquire fund to

initiate new business. If this source is chosen by Freddy then he has to
pay decided amount of money as interest every month. The amount of
loan can be paid in instalment as well. The interest rate which is
applicable on the loan is decided by the bank itself.
Lease In this source of finance there are two party lesser and lessee.
Lessee is the person who takes the asset on interest basis and lesser is
the person who has the ownership of asset. Lesser gives the permission
to the lessee to use his asset against some amount of money. The rate of
rent is decided by the lesser which needs to be paid by the lessee till
then he uses the asset.
2.2 Explain the importance of financial planning to a business like
Freddy Patel
Money is considered as the most important part for starting any
business. Without it any business operation can not be initiated. The
prime factor is to generate the fund after generating it its planning in a
proper manner is a difficult task which helps in generating revenue for
the organization. Proper planning of finance includes various steps
these are explained as below:
Fund estimation Proper financial planning leads to arrange the funds
in an organize manner. Fund estimation is an important task it decides
the amount of money which is incurred in each activity. Proper
planning of financing helps to evaluate the value of source.
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Structure of capital after deciding the fund source, structuring of

capital needs to be developed that develops the estimation of what
amount of money would be acquired from a particular source with the
affect of which an organization can earn more revenue.
Proper fund allocation The amount of money that has been raised is
used in some other acitivity. Financial planning in a proper manner
leads to funds allocation in an effective manner.
Evaluate the return fund allocation is organised in that manner by
which highest return could be acquired. The return must be equal and
greater than the amount which is needed.
Management of cash cash management is done in that manner by
which each and every activity of the business remain with the
appropriate fund. Money should not be wasted or missued. The
situation of financial crisis can be generated if money is not used in a
proper manner.
Financial performance assessment An effective planning of finance
ensures the amount of money is used in necessary activity. The reports
should be made about the generated return on funds will help to
improve the performance of the business.
2.3 Assess the information needs of different decision makers like
freddy patel

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In order to take a proper decision requires a relevant information

regarding the person who is associated with the organization. Here are
some information that is required by the companys stakeholder before
getting involved with it
Suppliers suppliers wants to acquire the information about the
credibility of the organization as for its payment. Supplers ensures
about the company to make more delivery after assessing the stock
details of the company.
Investors investor requires to get the information about the rate of
return that is included into the business. If organization fails to earn
profit in that case investors will not get any profit also. The amount of
money which is got by investor motivates him to make more
imvestment in the organization.
Government government requires to have the information regarding
the profitability of organization, the benefit of tax which is acquired by
the company. Government evaluates the activity of the organization if
tax is to be filled timely by the organization as the benefit of Taxes is
taken as granted and less quantum of tax is paid.
Competitors it is important in present scenario to get the correct
information regarding its competitor in order to measure its growth and
development. If any company is successful then its reason is being
evaluated and develops strategy to perform better than them.

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2.4 Explain the impact of finance on the financial statements to a

business like Freddy Patel
Evaluation of financial resources is the process of assessment of all
financial activity. Financial statement includes all the sources of
finance. Financial statement is bifurcated into two parts Assets and
liability. Here are the impacts of sources described as below:
Debt impact Debt is considered as the loan that make impact on the
account of profit and loss , cash flow and on the balance sheet also. Debt
cost is included in the account of profit and loss and deduct it as a profit
charge. Debt influences the cash flow activity of the Freddy Patel.
Equity share impact equity share is considered as the shareholders
interest which is used for the liability purpose at first place and interest
on the other. Equity share influences the financial statements balance
only. When the shares are issued by the company then funds of
shareholders in the balance sheet is increased by the affect of which the
financial activity of cash flow is decreased or increased consequently.

Task 3
3.1 Analyse budget and make appropriate decisions. Prepare the
following monthly budget n behalf of Freddy, for the first 12 months; a
sales budget, a production budget and a detailed cash budget, which
shows each monthss net flow.
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3.2 Explain the calculation of unit costs and make pricing decisions
using relevant information.
3.3 Assess the viability of a project using investment appraisal
techniques
Assignment - Part B

Task 4
4.1 Discuss the main financial statements based on the annual reports
and the ratios given in the previous section. Assess the compatative
performance of WM Morrison Supermarkets PLC and J Sainsbury PLC
for year 2014 and 2015
Financial statements
There are three parts of financial statement

Profit and loss statement

Balance sheet and

Cash flow statement

Profit and loss statement this statement is prepared to identify the
Net profit. It includes all the indirect incomes and expenses. Account is
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credited all the income and debited all the expenses. Nominal account
generally put into profit and loss account. If in P & L account the side of
credit is more than the debit then the remaining amount is considered
as Net Profit otherwise Net Loss. Net profit is shown in the balance
sheet and sum up into the capital amount otherwise added to the
reserve and surplus account.
Sainsbury and Morrison Plc

Freddy Patel ( Sole Trader)

Financial

statement

is

made

PlCs financial statement is made according to the GAAP (generally

according

to

the

standards

of accepted accounting principles) and

international financial reporting.

Better clearness

the standards of accounting.

and intelligibility

is needed in preparing the PLCs

financial

statements.

It

requires more disclosures.

also For the business of Sole trader

requires not much disclosure.

Balance sheet and statement of Balance sheet and statement o

income must be shown in vertical income must have two column such
format.

In

order

as expenses side and income side.

to

preparing

PLCs There is not such requirement that

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financial statement a set of rules

and

regulation

is

needed

on needs

to

be

followed

while

promptly. Financial statements of preparing a financial statement for

PLCs involves change in equity a sole trader. Its financial statement

statement, statement of income, includes profit and loss account

statement

of

cash

flow

and balance

balanace sheet.

sheet

and

balance

debtors and creditors statement.

Balance sheet with the help of balance sheet position of an

organization is evaluated in term of finance at the particular time. It is
the precise form of all the financial activity performed within an
organization. It has for parts equity share capital, net assets, current
liability and current asset.
Cash flow statement cash flow statement is dfferent from the balance
sheet and income statement as in this statement the quantum of money
which is outgoing and incoming in future and there entry is noted as
credit, is not included.cash flow statement involves three main stages
flow of cash from operating activity, from financial activity and from
investing activity within a particular year.
4.2 Compare appropriate formats of financial statements for different
types of business for the PLCs above with that of Freddy Patel sole
trader. Explain the differences and Explain why the Formats differ.

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