NAME OF STUDENT NGUYỄN TRỌNG NHÂNREGISTRATION NO. F07-040UNIT TITLE Unit 2: Managing Financial Resources and DecisionsASSIGNMENT TITLE VietSon Tours Finance as a ResourceASSIGNMENT NO 1 of 2NAME OF ASSESSOR Mr. Nguyen Nam Trung, ACCA, MBASUBMISSION DEADLINE

I, __________________________ hereby confirm that this assignment is my own work and not copied or plagiarized from any source. I have referenced the sources from which information is obtained by me for this assignment.

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BANKING ACADEMY OF VIETNAMBTEC HND IN BUSINESS (ACCOUNTING)

ASSIGNMENT COVER SHEET

Unit Outcomes

Outcome Evidence for the criteria

FeedbackAssessor’s

decision

Internal Verification

First attempt

Re-work

Understand the

sources of finance

available to a business

LO1

Identify the sources of

finance available to a

business

1.1

Assess the implications of the different

sources1.2

Evaluate appropriate sources of

finance for a business project

1.3

Understand the

implications of

finance as a resource

within a business

LO2

Analyse the costs of different

sources of finance

2.1

Explain the importance of

financial planning

2.2

Assess the information

needs of different decision

makers

2.3

Explain the impact of

finance on the financial

statements

2.4

2

Outcome Evidence for the criteria

FeedbackAssessor’s

decision

Internal Verification

Merit grades awarded M1 M2 M3

Distinction grades awarded D1 D2 D3

Assignment

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

Overall, you’ve

Areas for improvement:

ASSESSOR SIGNATURE DATE / /3

Outcome Evidence for the criteria

FeedbackAssessor’s

decision

Internal Verification

NAME:

(Oral feedback was also provided)

STUDENT SIGNATURE DATE / /

NAME :

FOR INTERNAL USE ONLYVERIFIED YES NO

DATE :VERIFIED BY :NAME :

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TABLE CONTENT

Introduction................................................................................................................................................6Identify the sources of finance available to VietSon Tours................................................................................................................................................7Assess the implications of the different sources of finance to VietSon Tours................................................................................................................................................8Evaluate appropriate sources of finance for VietSon Tours................................................................................................................................................9Analyse the costs of different sources of finance for VietSon Tours................................................................................................................................................10Explain the importance of financial planning to VietSon Tours................................................................................................................................................11Assess the information needs of different decision makers................................................................................................................................................12Explain the impact of finance on the financial statements to VietSon Tours................................................................................................................................................13References................................................................................................................................................14

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INTRODUCTION

Nowadays, every people have a lot of time to work without relax, so travel is a good choice to do this. Although the economy of Vietnam is go down in 2012, the travel industry in Vietnam are developing. The government also provide the assistance for the company and help them in doing activities. Vietson Tours is one of the travelling company. It is in the process to expanse the business. Expansion in this period is not really good with a company, which set up recently, so the company will have some difficulty to do that. Many tourists come to this country is a good opportunity of Vietson Tours to have more profitability if they can catch it. I’m a new appointed Trainee Accountant at Vietson Tours. In this report, I will show Mr Pham Duc, who is the investor of Vietson Tours evaluating the different sources of finance appropriate to each expansion stage of Vietson Tours. This report include seven main part: Identify the sources of finance available to VietSon Tours, Assess the implications of the different sources of finance to VietSon Tours, Evaluate appropriate sources of finance for VietSon Tours, Analyse the costs of different sources of finance for VietSon Tours, Explain the importance of financial planning to VietSon Tours, Assess the information needs of different decision makers, Explain the impact of finance on the financial statements to VietSon Tours

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1.1 Identify the sources of finance available to a businessVietson Tours is a partnership. It also a small business and new company. Financial is motive power after business for making profit. Business must have equity for their attempt to making revenue. You can donate your money for company and it is a good ways to grant it. The equity can come from the relationship such as family or friends, they always ready to loan money or buying stock on your company.

Bank is also a good choice to borrowing, they have many loans for small company. If the company have present customers, they can pay their money to buy goods or service, it means the company can use their cash to buy the product or inventory sell. With Vietson Tours company, they are own £30.000 for cash expense but the total start-up expense is about £5.000, so they have to borrowing £5.000 from the bank or outside sources.

Rent is a way to grant the computer, equipment, land, office, vehicles and different devices, it helps the company decrease the first expenses because at the beginning the company don’t have a large amount of money to buy them. Private placement, which the people buy the stock of the company can own one part of that company.

On Vietson Tours company, Mr Pham Duc and Mrs Le Nga are the investors of the Vietson Tour because they have contributed £167,000 to purchase two mini bus currently in its possession. The sources of finance include equity and borrowings.

On the equity include retained earning and sell the share, on the borrowings have borrow from the bank, invoice discounting, lease ( Operating lease and finance lease), hire purchase, overdraft, factoring and Government grant.

Sources of finance of Vietson Tours company are leasing (£500 rent equipment or land on total start-up expenses). Vietson tours company loan the bank with 10% interest rate in current interest rate and long-term interest rate on 3 years following the assumptions.

The company buy equipment such as computer, furniture on account and they don't need to pay immediately, purchase day to day cost until pay all debts but the interest rates will be high, so it is the hire purchase of Vietson Tours. They obtain the government grant because the tax rate in year 1 is 18,08% which is higher than the tax rate in year 2 ( 17,00%).

The retained earnings of Vietson tours is inside equity for example, in this year, your company Vietson Tours do business and make profit, about 10$ and you take about 20% of your profit and pay it to the investors so the dividend is 2$, the money remain is 8$ and you use this remain to invest on your company to make another profit. 8$ is retained earning.

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1.2 Assess the implications of the different sources

Debts financing: Borrowing money from sources outside with a promise to pay back, which is debts. Although the definition have the disadvantage meaning, almost new company like Vietson Tours often change to debts, which can grant to the activities of the company. The popular sources to have borrowing capital is from bank, it can be from a private company, friends or the member of the family. So the debts financing effect directly with the company.

With equity include retained earning and sell the shares, in financial, the dividend is not allowable for tax corporation. It means dividend don't relate with tax corporation, you have to pay tax corporation of the profit, which your company make, so the dividend don't need to pay tax corporation. In legal, Vietson tours can pay the dividend in case of profit which they make. When the company make some profit, one part of it should be shared for the investors or your company will lost charismatic, so the number of people invest to your company will be decreased.

With borrowing from the bank invoice discounting lease overdraft and factoring, the interest expenses are allowable for tax corporation in Financial side, after you pay the interest rate of loan money and expenses, the remain is the profit, which must be paid for tax corporation. In legal side, they have to pay debts include principal, interest and regardless of profitability, when you lend the money and you have to pay back it, the creditors don't care about the profitability. If our company have bankruptcy, the owner of the company or owner's equity is the last person who have to be paid.

On the other hand, the borrower or creditor will be the priority person who have to be paid. About control dilution, when our company issue the ordinary shares, many people will buy it and there are more investors or stockholder on your company, you will be less control on Vietson Tours.

About the issued preference share, the buyer of this share will have one part on the company but they don't have any permission to control Vietson Tours company, although they are the first priority to get the dividend, which is higher than another investors.

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1.3 Evaluate appropriate sources of finance for a business project.

Although you are investing for the Vietson Tours company or try to expanse the activities of company, you have many choice to choose source of finance, which is suitable for your company, but each source of finance have advantages and disadvantages.

Partnership:

Borrowing money from the bank is very difficult because partnership is new company, it have unstable work and do business, the mortgage such as land, large equipment building, inventory is not enough to keep the loan, it means the risk will be high, so the bank is hard for you to loan the money. Regard to Vietson Tours, the company don't have ability to purchase all the expenses of start-up the company, so they should loan money from the bank. Borrowing money from the bank in this expansion from sole trader to partnership is not suitable.

Hire purchase is a good choice when you set up the business at first period time. In this time, your assets are not large, so hire purchase help you have more ability to secure your finance and be free to buy the other things that the Vietson Tours need. In Vietson Tours, some large equipment such as computer, air conditional, furniture, cars can buy in hire purchase. Beside that, it can have some disadvantage, the interest rate can be high, you must make sure that you can follow the payments or they will take back the assets which you buy. In conclusion, hire purchase in this stage is necessary.

Retained earning include income which your company make by doing business and dividend. The advantage of it is easy to reinvestment. You can have the plan to expanse your business by making services and goods or format the development. If the retained earning is high so the dividend for stockholders can be low, they won't like it. In Vietson Tours, retained earning can be suitable in this stage.

Private company:

In this time, Vietson tours company will have brand in the market, your company may be do well and stable the business, company's assets are higher and large than partnership, it can't be difficult for the company to loan money from the bank. So it is a suitable source of finance in this stage to make the company develop and expanse faster.

With hire purchase, Vietson Tours can pay all the interest and they are complete payments of the hire purchase. Your company can go on to do it if the company's business is bad in this time. So the hire purchase in this expansion stage can be suitable or unsuitable base on doing business.

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Retained earning of the private company is necessary to reinvestment, but in this period, the dividend of your company has to make the stockholder satisfy if you want them keep invest to Vietson tours company.

Public company:

When Vietson Tours company become public company, it will be a large company in Vietnam, Hire purchase is unnecessary in this stage. It can make more expense when your company pay the interest of hire purchase.

The government will help you to expanse the business buy giving the government grant. The biggest advantage of it is that you don't need to pay back the money, which you receive from the government. The government will make some assistance to produce money without nervous about pay debt. Beside, many support programs will follow with extra support such as help to design the types of your business. But the disadvantages also have. One of them is time, which need a long time to have the acceptance from the government. You can't have the ability to wait the answer.

2.1 Analyse the costs of different sources of finance for Vietson Tours.

Share capital:

In Vietson Tours company, they pay the dividend for the stockholder by dividend in cash or scrip dividend.

With dividend in cash, it means the stockholder will be received the direct cash from the company for paying dividend. Vietson Tours is a partnership, so they don't have the legal provision for paying dividend. If the company pay the dividend, it will be effect with tax. The company must to pay double tax, one for tax of profits that the company make by doing business or it call tax corporation and tax for the dividends, which are paid for stockholder or it can call personal tax.

About Scrip dividend, instead of paying dividend in cash, the Vietson Tours company issue more stock for the stockholder. So the company won't purchase the cash for stockholder, the company con keep the cash for the company.

Borrowed funds:

When loan the money, the interest is the main cost. For example, Vietson Tours have a debt £5.000 borrowing from the bank and the interest rate is 10% per year. So £500 is the interest cost that the company must pay for the creditor.

Tax relief on interest will decrease the cost of debt. £500 is the money the company have to pay each year for interest rate. So base on the tax corporation this cost can be reduce, which will be necessary for the partnership.

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Arrangement fees will be the cost that the Vietson tours have to pay when the company loan the money. For example, the cost happen in checking references or prints the relevant document.

Government Grant:

The government give the company some grants to help them expanse the business. It usually have without cost but not easy to have the government grants. The company must have the condition, which suitable with the government's requests. So it will be have the cost for changing to different business. For instance, Vietson tours is a company tours, they can use the money to open more tour, which travel or visit the island such as Hoang Sa or Truong Sa of Vietnam, it can help to protect sovereignty of Vietnam, so the government may be give the company some government grants.

Retained earning:

The opportunity cost appear when the company have more than one choice when doing the business.

2.2 Explain the importance of financial planning to Vietson Tours Financial planning is very important with a company because it relevant to financial target, which was established and the way to use sources of finance to achieve that target. Furthermore, making the financial planning is a part of job, which spend a lot of time and resources, so it need the join of many part of company.The Vietson tour company must the financial planning in some case and show it, which follow the law and the request of partners. It will spend a lot of resources, time and it can incur many risk because some parts in financial planning can't show the right information or use it to make the bad purpose competitive.The benefits of financial planning are that the market and investors can be able to have a knowledge a lot with the business, make the truth. Following the financial planning that the management use to manage and make suitable spending expenses and orienting the business.This table show the assumption of Vietson tours about cash budget in three year.

Year 1 Year 2 Year 3Cash Sales £175,000 £278,250 £315,000Cash from Receivables £133,700 £253,883 £306,327Total Revenue £308,700 £532,133 £621,327Cash Expenses £112,800 £266,400 £289,200Bill Payments £144,204 £199,521 £219,625Pay for 2 mini bus £167,000Total start-up Expense £5,000Cash requirement £30,000Total Expense £459,004 £465,921 £508,825

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Vietson Tours make short financial planning (in one year). It illustrates the cash sales, cash from receivables, cash expenses and bill payments on year one, year two and year three. All of them increase year by year.

The benefits of financial planning are that the market and investors can be able to have a knowledge a lot with the business, make the truth. Following the financial planning that the management use to manage and make suitable spending expenses and orienting the business.

2.3 Assess the information needs of different decision makers.

Owner:

The person who own the assets of the company and run the business. You need to care about the market share, who are your competitors, what do you do to take care of customers and product them the best service in your company and the price of service and product of company. The profitability include expense and revenue, it evaluates the activities of the company, it does the work good or bad. The efficiency also access the work of company and employees. The last thing that the owner caring about is liquidity, which is able to pay the ready money.

Bank or lender:

The creditors like bank or lender, whom you loan from also have to know the profitability, they have to make sure that the debtors can possible to pay back the loan. Planning business, which will show the income expense or liability in the future of company and they have to know about that. Gearing ratio is also important because if the company have the high level of gearing ratio, it will be easy to downturn in the business, they keep continue to pay the debt in spite of bad sales.

Customers:

The customer use services or buy goods of the company, so the price is the first thing that they have to concern. What service that the company product and the brand of the company, Is it a famous or a big company.

Government:

The government will give the assistance to the company and the company must to pay tax to the government. They usually care about the size of the company, define the location of the company to have a suitable support, the employees, capital and industry. Profit is also cared by the government because the activities of business impact with the financial of a country.

Investors:

Investors buy, sell or invest the stock. Like other decision makers, they want to know and care the profitability, efficiency, liquidity and business plan. Shareholder investment of the company, who are the shareholder, who have the largest stock of the company. The current situation of the

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company is very important with the investors, they make the decision to keep invest to the company or not.

2.4 Explain the impact of finance on the financial statements to VietSon Tours

Cash flow include inflow and outflow.

Inflow is the money that the company receive from the customer who buy the company's services or goods and from selling the assets.

Out flow is payments, the company pay for the supplier, tax such as tax corporation and the interest rate of lenders.

To manage the cash flow ( inflow and outflow) the company have to prepare the plan for cash flow for next year, next two or three year. Because with a correct plan can alert for the problem, which can occur.

Choosing the right partner and customers is also the way that company manage the cash flow. The customers who have able to pay on time are a good choice. With the partners, the company usually consider carefully before they sign a contract.

Management working capital is decisions relevant with working capital and short-term finance. The purpose of management working capital is that the company can continue with the activities and it have enough cash flow for short-term debts and expense of activities.

The problem happen when the company manage the cash flow is that the financial planning is not actually correct. The customers don't or never pay the payment on schedule.

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Reference

Riley, J., 2012. Sources of finance - choosing the right source. [Online] Available at: http://www.tutor2u.net/business/gcse/finance_choosing_right_sources.htm [Accessed 1 November 2014].

VietSmart ESM, 2011. Lập kế hoạch tài chính cho doanh nghiệp. [Online] Available at: http://www.cfo.edu.vn/tvct/Tu-van,22,28,33,Ke-hoach-tai-chinh-la-gi-Tai-sao-doanh-nghiep-can-ke-hoach-tai-chinh-,page=0 [Accessed 3 November 2014].

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