Financial Appraisal - Essay Example

FINANCIAL APPRAISAL Financial Appraisal Query RTE is planning to make an advance payment to a supplier of furniture and fittings for the new building constructed. Vital Office Furniture Limited has demanded a 50% down payment of the total 100,000 pounds. The advance payments will be mentioned as a prepaid expense, and once the furniture and fittings is supplied by Vital Office Furniture Limited we will balance it out in our Balance Sheet. The advance payments or the down payments are preliminary payments that would enable the suppliers to start the work right away and the advantage of doing such an act would help in reducing the supplier’s financial charges (Morris, 2007). For construction projects such as this, in order to jumpstart the project, an initial payment is necessary. This also shows a commitment to the supplier and a project approval from the client. The trustees are concerned about the large amount of 50,000 pounds and no prior dealing with the particular supplier. Their concern is appropriate as an advance payment benefits the supplier and adds risk for the buyer. As funds are tight in the early stages of construction, the trustees cannot overlook the risk involved in advance payments, as the supplier may not deliver the goods, and the huge investment in this case would go down the drain (Ofoegbu, 2011). To mitigate the financial risk, an Advance Payment Guarantee would be obtained by us to cover the value of the advance payment. For example, if Vital Office Furniture fails to supply us the ordered furniture and fittings, defaults or goes into liquidation, we would declare the whole transaction as null and void. Hence, we will also receive a full refund of the advance payment made. The advance payment guarantee will protect us from losing the 50,000 pounds as we will pay in advance to Vital Office Furniture Limited. The Advance Payment Guarantee would contain a condition that the guarantee would not come into place unless Vital Office Furniture Limited does not receive the advance payment. On the other hand if Vital Office Furniture Limited is not running away and is just delaying most of the supplies of goods for some reasons, we can retain the final payments until we are provided with the full shipment. With this, even if the supplier fulfills a part of his problem and ships the first batch of furniture and fittings, we can hold or retain the rest of the 50% payment unless we are satisfied with the contract. This would also help us reduce the risk with the supplier. Hence through an advance payment guarantee we can reduce the financial risk of losing the entire amount given in advance to Vital Office Furniture Limited, as we can recover the amount through it. On the other hand if the supplier does not fulfill his promise and contractual obligations to our satisfaction we can even retain his final payments. Query 2 The Charities Act 1993 stated that all charities registered had to prepare a Trustees’ Annual Report. As a registered charity we to have to prepare a Trustees’ Annual report. As we are a charity with an annual turnover of 2.5 million pounds, we are required to file a Trustees’ report to the Charity Commission. This report will be scanned and uploaded on their website for anyone who wishes to view it (Charity Commission, n.d.). Before going on to the requirements of this report, the value and rationale behind it must be highlighted. Producing the document is not hard, and would require a minimum effort, time and resources. This document would have certain purposes. We would be able to explain the performance of the charity to all the concerned stakeholders. Through this document we will not only be able to retain existing donors but also attract new donors. The document would also lead to staff and volunteer motivation, if positive results are achieved. Potential beneficiaries will be able to focus themselves more and would result in better grant applications. When the track record is viewed by interested parties, they will gain confidence in our ability to deliver. The rationale behind this Trustees’ Report will further justify this report. The numbers are just not enough as there must be words which support the numbers provided by us. Secondly, it is the right of the users that they get explanations on our activities, achievements and performances. Thirdly, as charities are accountable to the public, these annual reports must be published to provide transparency (Learner, nd). The report is published so that the trustees can get an insight of the past performances for the company and make future plans, which reflects that the trustees are not only thinking about the past but taking action upon it too. Apart from this the statements published in the reports are all unrelated material which are supported by this narrative resulting in a cohesive “report and account package”. Another rationale for this report is that it shows how the created policies fit within the organization’s structure and what would be their impact on the overall performance. Finally there should be a flawless link between the Statement of Recommended Practice (Sorp), Financial Statements, Notes, Accounting Policies and the Trustees Annual Report (Guardian, 2001). The requirements for us to produce a Trustees’ Annual Report have to be reviewed and then the ones which apply to our charity have to be determined. Based on the information that whether our charity is a company as well, the annual income in our financial statements and the value of the charity’s assets need to be analyzed. All these factors, along with many others, help in establishing as to whether the charity should be made a registered charity or not. The other factors may include several other issues that may need consideration and once a charity gets registered, it would have an effect on many different issues and decisions. Firstly this would decide what type of accounts we have to prepare Secondly, what information is required in the Trustees’ Annual Report. Thirdly, whether our accounts need to be audited or who would be the best candidate to offer an independent examination of the full accounts and finally what information must be sent to the Charitable Commission (Charity commission, n.d). The major contents of the Trustees’ Annual Report are as follows: 1. Reference and Administrative Details 2. Structure, Management and Governance 3. Objects, Aims and Activities 4. Achievement and Performance 5. Analysis of the Financial Performance 6. Prospective Plans 7. Statement of Trustees Responsibilities The first segment will contain the address, patron or president and the Trustees of the Charity. The name of the managers will also be mentioned in this part, along with the independent examiner. The Structure, Management and Governance segment will include the nature of the governing documents, their management policies and practices, how the trustees are recruited and appointed, how the charity is governed and the risk management policy. The next part will examine the charity’s objectives, mission, aims and objectives. Furthermore, how the aims are going to be achieved i.e. the activities that would be carried out plus the strategy involved. Next the achievement and performance of RTE would be highlighted, summarizing the key activities undertaken during the past. The fifth content of this Report is the Financial Review. The Trustees Annual Report in this section will analyze the expenditure done by the charity over the year and whether the expenditures are justified by providing value or not. The analysis of the funding through the year also has to be summarized in this part. Whether the funding has been on a downfall or rise has to be stated with reasoning. After the financial review, the future plans of the charity would have to be elaborated. Evaluating the current activities, funding levels, staffing and the level of capacity will help in determining whether the charity would be able to grow in the upcoming years. This section would also include a summary of the plans and methods that would help in attracting new funding via donations, trusts or institutions. Finally the Statement of Trustees Responsibilities will include what the Trustees are entrusted to do. This statement will include the responsibility of producing the annual Trustees Report, if the Trustees are also directors of the company (Charity Commission, n.d.). Query 3 In RTE some of the Trustees are also company directors, hence they have to be aware of not only the charity reporting requirements but the company reporting requirements as well. To understand the difference between the two reports, let us first take a look at the Charity Reporting Requirements. Few things are compulsory for all types of charities, whether they are considered small or medium sized charities. The financial year in which the report is created and referred to has to be mentioned, along with the charity’s original name or any alternative names it goes by. To distinguish a charity from other charities, a charity number would be assigned once it is registered with the Charity Commission. A summary should be provided which would include the charity’s performance and activities during the past year. For understanding as to how the charity operates, the charity’s rules such as its form, model and dates of adoption have to be mentioned along with any restrictions on how the charity can operate. The names of all the bankers, auditors or independent examiners or solicitors have to be mentioned. Trustees who served during the year with the charity along with strategy to recruit new trustees also have to be mentioned. The method of choosing the investments and how it would be authorized is to be included as well. There are certain additions for charities with over 250,000 pounds annual gross income. When mentioning the achievement and activities, a detail has to be provided on material transactions and notable achievements or progresses during the year. Information should also be included with respect to any important events or changes made during the year as well. The detailed information on investment performance and the assets held by the charity for some other charity should also be made part of this report. Finally an organizational structure of the charity has to be presented as well (Campbell, 2008). Even though there are some similarities between the Charity Reporting Requirements and Company Reporting requirements, they are some significant differences which are to be taken into account. The main difference is that the company reporting requirements need an inclusion of the detailed financial information and director’s and auditor’s report. The director’s of this company need to take care of their responsibilities. They need to ensure that the company’s accounting records are in conformance with the Company Act. They also need to ensure that the accounts are prepared giving a fair and true value at the end of the financial year. The entire annual report should contain the financial statements comprising the Statement of comprehensive income, Statement of Financial Position signed by the director, and if applicable a signed copy of the auditor’s report should also be included. The director’s report will act as a narrative describing the company’s operation’s analysis and financial performance summary. The share capital, donations, bank loans, assets are some of the items which may form a part of this director’s report. The directors’ report will also include future plans of either going public or if already a public company the share allocation plans would be discussed. Apart from the director’s report a notes to accounts will be provided at the end which will support the financial statements (BERR, 2009). Bibliography BERR, Department. (2009). Accounts and Accounting Reference Dates, Companies House, (21), [online] Available at: http://ukdata.com/help/credit-reports-documents/Guide_to_Accounts_Filing.pdf [Accessed: 13th Jan, 2012]. Campbell, G. (2008). The charity annual report: Not just a set of accounts!’. Solicitors Journal - Charity and Appeals Supplement[online]. 2008, 1.Available at: http://www.campbelltickell.com/pdfs/solicitors_journal_summer_2008.pdf Charity Commission. (n.d.). CC15 - Charity Reporting and Accounting: The essentials,[online] Available at: http://www.charitycommission.gov.uk/publications/cc15.aspx#5 [Accessed: 13th Jan 2012] Charity Commission. (n.d.). Preparing your Trustees Annual Report, [online] Available at: http://www.charity-commission.gov.uk/Charity_requirements_guidance/Accounting_and_reporting/Preparing_annual_reports/default.aspx [Accessed: 13th Jan 2012]. Guardian, S. (2001). How to compile the perfect charity report, The Guardian, 12th Feb.[online] Available at: http://www.guardian.co.uk/society/2001/feb/12/charities.voluntarysector [Accessed: 13th Jan, 2012]. Learner, F. (n.d.). The Value of your Annual Report,Charity Comms, n.d., [online] Available at: http://www.charitycomms.org.uk/articles/insider_secrets/the_value_of_your_annual_report [Accessed: 13th Jan, 2012]. Ofoegbu, L. (2011). Managing Risks of Advanced Payments in Projects. PMI, [blog] 13th July, Available at: http://blogs.pmi.org/blog/voices_on_project_management/2011/07/managing-risks-of-advanced-pay.html [Accessed: 13th Jan, 2012]. Peter, M. and J.K., P. (2007). The Wiley Guide To Project Technology, Supply Chain & Procurement Managament, New Jersey: John Wiley & Sons, Inc., p.331. Read More