A banker’s acceptance is an instruments produced by a nonfinancial corporation but in the name of a bank. It is document indicating that such-and-such bank shall pay the face amount of the instrument at some future time. The bank accepts this instrument, in effect acting as a guarantor. To be sure the bank does so because it considers the writer to be credit-worthy. Bankers’ acceptances are generally used to finance foreign trade, although they also arise when companies purchase goods on credit or need to finance inventory. The maturity of acceptances ranges from one to six months.

Commercial paper refers to unsecured short-term promissory notes issued by financial and nonfinancial corporations. Commercial paper has maturities of up to 270 days (the maximum allowed without SEC registration requirement). Dollar volume for commercial paper exceeds the amount of any money market instrument other than T-bills. It is typically issued by large, credit-worthy corporations with unused lines of bank credit and therefore carries low default risk.

Unlike some other types of money-market instruments, in which banks act as intermediaries between buyers and sellers, commercial paper is issued directly by well-established companies, as well as by financial institutions. Banks may act as agents in the transaction, but they assume no principal position and are in no way obligated with respect to repayment of the commercial paper. Companies may also sell commercial paper through dealers who charge a fee and arrange for the transfer of the funds from the lender to the borrower.

Repurchase agreements—also known as repos or buybacks—are Treasury securities that are purchased from a dealer with the agreement that they will be sold back at a future date for a higher price. These agreements are the most liquid of all money market investments, ranging from 24 hours to several months. In fact, they are very similar to bank deposit accounts, and many corporations arrange for their banks to transfer excess cash to such funds automatically.

A term deposit is a cash investment held at a financial institution. Your money is invested for an agreed rate of interest over a fixed amount of time, or term. Term deposits can be invested into a bank, building society or credit union. When the money is deposited, the customer understands that the money is there for the pre-determined period which usually ranges from 1 month to 5 years and the interest rate is guaranteed not to change for that nominated period of time. Typically, the money can only be withdrawn at the end of the period – or earlier with a penalty attached.

Term deposits are popular with investors who prefer capital security and a set return as opposed to the fluctuations of, say, the share market. Many investors also use term deposits as a part of their investment mix.

Financial measures:
• Proportion of overall funds spent on administration costs
• Ability to stay within budget/break even
• Revenue targets met.
Economy targets:
• Costs of purchasing books of suitable quality
• Costs of negotiating for and purchasing equipment.
• Negotiation of bulk discounts
• Pay rates for staff of appropriate levels of qualification.
Efficiency targets:
• Levels of wastage of outdated books
• Staff utilisation
• Equipment life.
Effectiveness targets:
• Numbers using the library
• Customer satisfaction ratings
• Quality of books and speed of internet served

The project is therefore profitable and must be implemented.

• Profit planning
• Profit measurement
• Performance assessment
• Cost control and management
• Employee reward schemes
• Costs and inventory valuation

PIECE RATE:
This a wage reward system where labour is paid based on the volume of work done. Here, the output recorded is the reference point for measuring the wages payable to the employee but not the time spent. Examples of production settings where this rate system is applicable may include, construction, manufacturing, food processing, etc.

TIME RATE:
This is a reward system that relates wages to the time spent by the employee. Example, hourly, daily, weekly, fortnightly or monthly, depending on the nature of skill of the employee. This is usually used in service firms such accounting firms, hospitality services, law firms etc.

Overtime premium is generally accounted for as indirect labour costs. However, where overtime payments result from customer specific requirements for the production of a product or job, then such overtime premium may be accounted for as direct labour.

• A specific order is carried out or a product is produced is produced to meet the specific requirements of the order
• Specific order costing enables a business to ascertain the cost of a job order on the basis of which quotation for the specific order may be given.
• While computing the cost, direct costs are charged to the job order directly as they are traceable to the job order.
• Indirect expenses i.e. overheads are charged to the job order on some suitable basis.
• Each specific order completed may be different from other specific orders and hence it is difficult to have standardization of controls and therefore more detailed supervision and control is necessary.
• At the end of the accounting period, work in progress may or may not exist.                                                                  (Any 5)

Features of Operational Information:

• Detailed information.( Production schedules)
• Mainly quantitative. (Payroll sheets)
• Internal sources.( Stores ledger cards)
• Relates to immediate term. (current or previous week)
• Prepared frequently. (daily production reports)
• Task specific. (maintenance reports)                                                                                                                                (Any 5)

• There should be a target set.
• Actual performance is measured
• Actual is compared with targets.
• Variances are analyzed and corrective action taken.                                                                                                       (Any 2)

The budget of an enterprise serves the following purposes:

• Budget is an aid in making and coordinating short-range plans.
• It is a device for communicating these plans to the responsibility center managers.
• Budget is a way of motivating managers to achieve their responsibility centers goals.
• It is a bench mark for controlling on-going activities.
• Budget is a basis for evaluating the performance of responsibility centres and their managers.                                      (Any 3)

• Stage 1: Identify the principal budget factor (or key budget factor). The principal budget factor is often sales volume.
• Stage 2: Prepare the functional budget or plan for the principal budget factor. Usually, this means that the first functional budget to prepare is the sales budget.
• All the other functional budgets should be prepared within the limitation of the principal budget factor. For example, even if the company has the capacity to produce more output, it should not produce more than it can sell ( unless it formally decides to increase the size of the finished goods inventory, in which case the production volume will be higher than the sales volume).
• Stage 3: Prepare the other functional budgets, in logical sequence where necessary. When the sales budget has been prepared, a manufacturing organization can then prepare budgets for inventories (=plans to increase or reduce the size of its inventories), a production budget, labour usage budgets and materials usage and purchasing budgets. Expenditure budgets should also be prepared for overhead costs (production overheads, administration overheads and sales and distribution overheads). Overheads costs budgets are usually prepared for each cost centre individually.
• Stage 4: Submit the functional budgets to the budget committee for review and approval. The functional budgets are co-ordinated by the budget committee, which must make sure that they are both realistic and consistent with each other.
• Stage 5: Prepare the ‘master budget’. This is the budget statement that summaries the plans for the budget period. The master budget might be presented in the form of:
  * a budget income statement of the next financial year.
  * a budgeted statement of financial position as at the end of the next financial year.
  * a cash budget or cash flow forecast for the net financial year.
  It should be possible to prepare the master budget statements from the functional budgets.
• Stage 6: the master budget and the supporting functional budgets should be submitted to the board of directors for approval. The board approves and authorises the budget.
• Stage 7: the detailed budgets are communicated to the managers responsible for their implementation.               (Any 6 steps)

‘Master budget’ is a consolidation of the various functional budgets. Budgeted financial statements are prepared on the basis of the master budget. (1 mark)
Usefulness:

• A master budget helps to co-ordinate all other functional budgets and to clarify the short-term objectives of an organization. Department budget are co-ordinate with the master budget which alleviates the conflict between the departmental objectives and the organizational objectives.
• A master budget acts as a line of communication between the various departments.
• A master budget is the basis for planning. Budgeted financial statements are prepared on the basis of a master budget.
• A master budget possesses the targets of all the departments and therefore acts as a basis for performance evaluation.   (Any 2 points for 2 marks)
  Problems:
• The main problem with any budgeting system is that it is based on forecasting and therefore subject to uncertainties.
• Master budget are prepared on the basis of certain assumptions that may not hold true in reality.               (Any 1 point for 1 mark)

‘Functional budgets’ are budgets for individual functions such as sales, purchases, production etc.      (1 mark)
Usefulness:

• Functional budgets give targets to individual mangers.
• As departmental mangers prepare functional budgets, they are more realistic and motivating.                     (2 points for 2 marks)
  Problems:
• As they are prepared by functional mangers, there is the possibility that they may not be in line with the strategic objectives and may conflict with the organizational objective or the objectives of the departments unless they are properly co-ordinate.
• Like any other budget, the functional budgets are also based on forecasts and therefore affected by significant changes in the environment.                                                                                                                         (Any 1 point for 1 mark)