http://www.baitshepi-tebogo.com en-gb baitshepi-tebogo.com 2010-11-2T00:00:00Z baitshepi-tebogo.com http://www.baitshepi-tebogo.com/page2.htm#79339 Often times employees are confronted with situations which might be unpleasant for them but are compelled to act against their instincts. That is one finds himself or herself having to take decisions which ethically he or she is not comfortable with. For professional bodies it is clear what you need to do. As a start you have to discuss with colleagues your discomfort. If that does not bear fruit then refer upwards and if that still does not work you must refuse. And obviously if it gets to this point you might start considering resigning from your employment.So issues about one getting bullied into doing something unethical should not arise professionals are supposed to know how to deal with unethical behaviour. But often times most people consider their careers and what will happen to them if they were to resign. Studies in ethics are clear that you should always think about the consequences of your actions. Some may think that acting within the law is adequate to address ethics but ... 2010-11-2 18:39:22 http://www.baitshepi-tebogo.com/page2.htm#56101 There are several methods which can be used to absorb overheads. The most common methods of calculating overhead absorption rates are Rate per unit produced Direct labour hour rate Machine hour rate Percentage of direct wages cost Percentage of direct materials cost Percentage of prime cost A major factor in selecting the absorption rate to be used is a consideration of the practical applicability of the rate. This will depend on the ease of collecting the data required to use the selected rate. Generally a timebased method should be used. Overhead absorption rates are usually predetermined that is they are calculated in advance of the period over which they will be used. When the actual overhead incurred per hour is different from the predetermined rate per hour the overhead is either under or overabsorbed. Historically the most common method of absorbing production overhead has been based on direct labour hours. The me... 2010-1-13 18:33:04 http://www.baitshepi-tebogo.com/page2.htm#56100 Relevant costs are the type of costs which are influenced by the decisions made. That is they are decision specific. As such all relevant costs should be considered in management decisionmaking. And a cost that remains unaltered regardless of the decision being taken is regarded as being a nonrelevant cost. Different types of nonrelevant costs are Sunk or past costs These are costs which have already been incurred and hence no matter what happens they cannot be altered. Absorbed fixed overheads These are fixed costs which are allocated or apportioned on an arbitrary basis by using for instance labour hours machine hours etc as the basis for absorption. Committed costs These are the type of costs an entity becomes committed to due to contracts or past behaviour. Historical cost depreciation Depreciation is not relevant as it does not represent the transfer of economic assets. It is just an accounting c... 2010-1-13 18:11:35 http://www.baitshepi-tebogo.com/page2.htm#56066 Total Shareholder Return TSR is based on the rise in the price of shares plus dividends received over a set period of time. There are some important considerations when using TSR such as Risk. When using TSR to compare the performance of two or more companies it is important to allow for relative risk. TSR assumes efficient share pricing at the beginning and end of the period examined. The time period of examination A TSR over a fiveyear period can look very different from a TSR measured over a oneyear or tenyear period when examined alongside the TSR of a peer group. Please note that using TSRs for bonuses may not always align managerial interests with shareholders. And TSR is useless in the case of companies not quoted on a stock market. The wealth added index WAI takes as its starting point the factors in TSR i.e. capital gain or loss on shares plus dividends over a period of time but also takes into account the time value of money by deducting the cost of equity. ... 2010-1-13 13:46:37 http://www.baitshepi-tebogo.com/page2.htm#56061 Shareholder value is driven by the following four factors The amount of capital invested The actual rate of return on capital invested The required rate of return on capital invested The length of time over which the performance spread see below will persist to create value. And essentially the actual return must be more than the required return for value to be created. That is there must be a positive performance spread. The performance spread is the percentage spread of the actual return above or below the required rate of return given the finance providers opportunity cost of capital. To measure annual value created or projected value yet to be created multiply the quantity of capital invested by the performance spread. Annual value creation Investment x actual return required return I r k The point in the future where the required and the actual rates of return become the same is the planning horizon. Corporate value Present value of cash flows within p... 2010-1-13 13:25:40 http://www.baitshepi-tebogo.com/page2.htm#56059 Shareholder value can be defined as the value of the return that a shareholder is able to obtain from their investment in a company. This is made up of capital gains dividend payments proceeds from buyback programs and any other payouts that a firm might make to a shareholder. Managers should examine a business or parts of their business in terms of the following questions How much money has been or will be placed in this business by investors What rate of return is being or will be generated for those investors Is this sufficient given the opportunity cost of capital These three questions can be used to examine past performance or future plans. Valuebased management is a managerial approach in which the primary purpose is longrun shareholder wealth maximisation. The objective of the firm its systems strategy processes analytical techniques performance measurements and culture all have as their guiding objective shareholder wealth maximisation. Identifying value... 2010-1-13 13:13:05 http://www.baitshepi-tebogo.com/page2.htm#55989 Activity Based Costing is a development on traditional absorption costing methods. Several developments in manufacturing have made it imperative to have a method that could more accurately deal with the problem of overheads. In the modern business environment overheads have become a significant proportion of total production cost. This has therefore necessitated the need to find a method of accounting that could provide accuracy in product costing. In the past production was mostly manual and as such labour was a significant part of total cost of production. And because most of the operations were labour based material costs were also significant because of human error. That is when work is not automated it is very likely that there would be a lot of errors and wastage during production. so in the past overheads were an insignificant part of total production costs. So ABC is an approach to the costing and monitoring of activities which involves tracing resource consu... 2010-1-12 16:46:15 http://www.baitshepi-tebogo.com/page2.htm#55952 Marginal Costing and Absorption Costing are methods which are often used to prepare profit statements value inventory and assist in pricing decisions. The methods have some notable differences which can be reconciled though. Absorption Costing absorbs all manufacturingproduction costs into inventory valuation. These costs include direct material direct labour direct expensesvariable production overheads as well as fixed production overheads. On the contrary Marginal Costing absorbs only variable manufacturingproduction costs into inventory. The method chosen to cost inventory or prepare the profit statement has the potential to affect the pattern of calculated profits influence employee behaviour and provide management with relevant and useful information for planning and control purposes. And the following could be considered to be advantages of each method. Advantages of absorption costing Gives attention to both fixed ... 2010-1-12 08:32:49 http://www.baitshepi-tebogo.com/page2.htm#55858 The appraisal of projects is a complicated area especially if investments take place in countries other than the domestic country. It is common to confront additional challenges eg Which perspective to take Is it the projects cash flows in the host country or those cash flows expected to be repatriated to the head office. The receipt of net cash flow in the domestic currency is usually exposed to foreign exchange risk What is the systematic risk on an international project and Politicalcountry risk. There are 2 approaches in discounting overseas project cash flows Discount the overseas cash flows at the overseas discount rate to create a overseas NPV. Then convert this NPV at the current spot exchange rate to give the NPV in home currency Convert each of the estimated future overseas cash flows into home currency. Then discount these to generate a home currency NPV. Problem Difficult to hedge project cash flows against currency risk. Overall however overseas project... 2010-1-10 20:01:35 http://www.baitshepi-tebogo.com/page2.htm#55856 The cost of equity capital is the return that needs to be offered to investors to induce them to buy and hold the equity shares in a company. This return is determined by the returns available on similar securities of the same risk class. The capital asset pricing model gives a required rate of return for any asset if it is possible to obtain its beta measure of its systematic or nondiversifiable risk and the equity risk premium demanded by investors above the risk free rate of return for accepting the risk associated with investing in shares generally. Some risks are unique to the particular share. The impact of these variables is known as diversifiable risk also referred to as firm unique or unsystematic risk. Some risk variables will affect all shares to a greater or lesser extent. The impact of these variables is known as nondiversifiable risk also referred to as market or systematic risk. The reduction in standard deviation of the returns on the portfolio... 2010-1-10 19:24:45 http://www.baitshepi-tebogo.com/page2.htm#55852 Investors in a companys debt are interested in getting a rate of return that is in line with the return offered on other interestbearing instruments which carry the same risk. This is called the cost of debt. It is also essential to note the following That is the yield to redemption or market yield is the average pretax marginal rate of interest kd on a firm8223s debt reflecting its current credit rating. For irredeemable debt this is determined as kd IP0. For redeemable debt the yield to redemption will be the internal rate of return of debt using the current market value of the debt and future cash flows. The relationship between the price of redeemable bonds the coupon rate and the yield to redemption P PVcoupon flows PVface Cr x 111rn F1rn Also note that the longer the maturity of a bond the greater the sensitivity of the bond to changes in interest rates and therefore the greater the change in price corresponding to a particular change in yield. Th... 2010-1-10 18:55:33 http://www.baitshepi-tebogo.com/page2.htm#55849 Required Rate of Return can also be referred to as the opportunity cost of capital. This represents the rate which should adequately compensate investors for their investments in a company. The cost of capital is important for several reasons because Investors expect a return on their investment sufficient to compensate them for their risk Value creation is evidenced by a residual positive net present value NPV after discounting cash flows at the cost of capital and many management compensation packages are based on metrics using cost of capital numbers. The cost of capital can also be described as the rate of return that a firm has to offer finance providers to induce them to buy and hold a financial security. This rate is determined by the returns offered on alternative securities with the same risk. Investing in government bonds is usually considered the safest form of investment available. Government bonds are normally associated with the riskfree rate of r... 2010-1-10 18:20:17 http://www.baitshepi-tebogo.com/page2.htm#55392 As you consider investing in a project it is necessary to think about the possibility of failure. So therefore this chance that you might fail needs to be captured in the appraisal model. Raising the discount rate is one way of dealing with project risk. There are 2 difficulties with this approach A high degree of subjectivity in categorising projects into risk categories and the difficulty of choosing an appropriate risk premium. Sensitivity analysis A method of allowing for risk and one used by over 80 of large companies which builds up a picture of possible outcomes by recalculating the NPV when one or more of the variables at a time is changed by a certain percentage or round amount. With sensitivity analysis managers can pay special attention to the potential for deviations from estimated mostly likely value for the variables. They may also preplan to control cash flows in that area. We can also use the breakeven model. Breakeven represents the point at wh... 2010-1-3 13:27:37 http://www.baitshepi-tebogo.com/page2.htm#55389 Profitability index PI is present value of all cash flows except the initial investment GPV divided by initial investment. Projects with a PI gt 1 are acceptable they generate shareholder value. If there is a rationing of capital so that not all positive NPV projects can be financed then the rule is to select those projects with the highest PI first going down the PI ranking until the capital investment limit is reached. In capital rationing sometimes we have to deal with divisible and indivisible projects. Divisible projects are those whereby a fraction can be undertaken and a proportionate cost and NPV is produced. On the other hand an indivisible project is where fractions of the project cannot be implemented. Other important considerations in project appraisal are hard capital rationing and soft capital rationing. Hard capital rationing capital from outside the firm e.g. from lenders or shareholders is limited even though managers have identified positive NPV pro... 2010-1-3 12:38:16 http://www.baitshepi-tebogo.com/page2.htm#55385 Aside from the quantitative aspects project appraisal should be subjected to qualitative scrutiny. The following is a suggested process towards investment.Idea generation the creation of a culture and system that encourages people within the organisation to come forward with ideas for future projects or improvements to existing ones. An atmosphere that allows investment ideas to surface and to evolve can be a significant competitive advantage for a firm.Sponsorship of a project might involve presenting the idea to others who have specialist expertise helping to test the idea and shed light on the projects viability considering how the investment fits with the strategic direction of the business evaluating the project using the discounted cash flow techniques as well as more traditional techniques such as payback applying for authorisation and funding taking a leading role in the project implementation and helping to assess the project as it is being undertaken to se... 2010-1-3 12:10:03 http://www.baitshepi-tebogo.com/page2.htm#55383 It is always important that before undertaking an expensive capital project a company evaluate it to determine whether it has the potential to increase shareholders wealth rather than destroy it. To this end several appraisal techniques are used. These techniques include the Net Present Value NPV the Internal Rate of Return IRR and others.Generally NPV is viewed to be a much superior capital budgeting method than others. Despite this IRR is still a popular choice among managers.The Association of Corporate Treasurers ACT report indicated that companies have increased their use of discounted cash flow techniques over the last thirty years. Also large firms are more likely to use net present value NPV than small firms and small firms use payback as much as the discounted cash flow DCF methods. Companies do not tend to select one of the techniques to the exclusion of all the others many use three or four.Explanations advanced for the continued use of methods other than net... 2010-1-3 11:37:34 http://www.baitshepi-tebogo.com/page2.htm#55377 All businesses should be able to fully understand their costs of production. Failure to do so is likely to lead to business failure since there might be a possibility of operating at suboptimal levels.In economics by costs of production we refer to the prices paid for the factors of production and the opportunity cost attributable to factors already owned. It is important to note that we also factor in our costs formula the opportunity cost. In accounting opportunity cost is often ignored. Costs of production are divided into two categories Fixed costs these do not change with the level of production or activity Variable costs these costs vary with the level of activity or production. It is important that we get ourselves familiar with some of the terms such as the the short run and the long run. The short run in economics is defined as a period of time in which at least one factor of production is fixed. On ... 2010-1-3 08:58:16 http://www.baitshepi-tebogo.com/page2.htm#55361 The price or exchange value of a good or service usually indicates the resources which are brought together to produce or provide it.Production is usually not adequate to meet all of needs. The fact that our needs are unlimited and yet resources are causes scarcity. Scarce resources usually command a high price. It is also worthwhile to note that sometimes there are competing ends for which resources could be used. If these ends are many and varied in importance and the means of achieving them are limited then there is an economic problem and someone has to decide which end will be satisfied through production.We sometimes talk about Relative scarcity of resources which means that a choice has to be made. When a choice arises an alternative has to be given up. The sacrifice when a choice is made is termed the opportunity cost because it is the next best alternative foregone. Usually the opportunity cost has a monetary value.In production we need to make decisions in consider... 2010-1-2 22:59:18 http://www.baitshepi-tebogo.com/page2.htm#55355 The consolidated statement of financial position is a statement of financial position that reflects the financial position of a parent and all its subsidiaries as if they were one single entity. That is it reflects the performance of the entire group. In consolidating the results of a parent company and its subsidiaries full consolidation method is used. Full consolidation entails aggregating the net assets of all the group entities on a linebyline basis. In consolidating the results of the group it is often necessary to deal with goodwill. Goodwill specifically goodwill on acquisition arises when the cost of investment does not equal the net assets at the date of acquisition. And this goodwill on acquisition is carried as an asset in the consolidated statement of financial position. Preacquisition retained earnings and any other reserves existing at the acquisition date are just some of the other items that have to be dealt with. These are part of the net a... 2010-1-2 21:41:55 http://www.baitshepi-tebogo.com/page2.htm#55351 A group is a cohesive economic unit. And a cohesive economic unit is one that is subject to control from a common source. We can look at a group of companies as being made up of a number of separate legal entities that are subject to common control and therefore can be said to be a single economic entity for financial reporting purposes.Within a group there is a parent company. It is the parent company which usually exercises common control. The exercise of common control means that the parent entity controls the operating and financial policies of the other entities of the group which are known as the subsidiary entities.A subsidiary is an entity that is controlled by another entity. In financial management control is known as the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. And the most common way for one entity to control another is by obtaining a sufficient number of equity shares to control more than 50 of ... 2010-1-2 20:30:58 http://www.baitshepi-tebogo.com/page2.htm#55314 The International Accounting Standard Committee IASC foundation was established in 1973 as a way of bringing about convergence in accounting policies and practices around the world. It has evolved since its foundation but currently the duties of its trustees are as follows The IASC foundation serves through its trustees the purpose of appointing members of the International Accounting Standard Board IASB the International Financial Reporting Interpretation Committee IFRIC and the Standards Advisory Council SAC. It also evaluates and reviews the effectiveness of the IASB on an annual basis. And also to finance the activities of the IASB. It makes an assessment on the financial budget submitted by the IASB and stipulate the basis for funding. It also reviews broad strategic issues affecting accounting standards and to promote the work of the IASB as well as promoting the objective of rigorous application of the IASBs standards. On the other hand the SAC gives advice... 2010-1-2 10:00:10 http://www.baitshepi-tebogo.com/page2.htm#55297 A standard has been defined as a benchmark measurement of resource usage set under defined conditions. The conditions under which a standard may be set could vary. For instance we could have an ideal standard attainable standard current standard and a basic or historical standard.An ideal standard is one that is set at a very higher level such that it does not entertain a normal level of loss. That is no human error is factored into the standard when it is set. Often times an ideal standard leads to adverse variances which may be demotivating to employees.An attainable standard on the other hand allows for normal levels of inefficiency. And unlike the ideal standard it can be motivating for employees.A current standard is set by looking at the current operating conditions. That is whatever level of performance is achieved helps in providing a benchmark for the standard.And then the basic or historical standard is the type that does not get adjusted. It has no useful control purposes bu... 2010-1-1 22:02:01 http://www.baitshepi-tebogo.com/page2.htm#55058 There are 2 major traditional methods which could be used to prepare accounts. These are absorption costing and marginal costing methods. The major difference in the 2 methods depends on how stock is valued under each of the methods.With marginal costing stock is valued at only variable costs of production. These costs of production include direct material direct labour direct expenses and variable production overheads. So you must note that only variable production costs are used in stock or inventory valuation when marginal or variable costing is used.Absorption costing on the other hand in addition to the variable production costs includes a fixed production overhead absorption rate. This fixed production absorption rate is measured by dividing budgeted fixed overheads by the budgeted or normal level of activity. Because budgeted values have been used in developing a fixed overhead absorption rate also known as a predetermined rate a possibility for over or under absorbing arises. I... 2009-12-27 22:25:09 http://www.baitshepi-tebogo.com/page2.htm#54572 For us to understand costs incurred by our businesses we should be able to classify them otherwise it would be difficult to control them to within a reasonable level. There are actually several ways in which costs could be classified. For instance we could classify costs according to their elements behaviour or function.In terms of elements costs could be looked at in terms of whether they are material labour or expenses. However this classification does not end here. We need to go further and ascertain whether these are direct prime costs or indirect overheads. If we are in manufacturing or service industries it is relatively easier to deal with the direct costs since we can trace them to the product or service we have provided otherwise known as cost units. The overheads on the contrary are hard to deal with. This is because overheads can not be directly linked with any cost unit. Under traditional costing systems the solution to the overheads problem is to Firstly allocate or apport... 2009-12-15 12:53:08 http://www.baitshepi-tebogo.com/page2.htm#54477 I remember back in the days whilst an MBA student at the University of Botswana writing an essay based on the work of a reknown marketer C.K.Prahalad. The essay was entitled The Market Wealth at Bottom of the Pyramid. This is a very accurate observation especially in the context of developing countries.If you take a country like Botswana its only a few who can be characterised as rich. The fallacy for a long time has been that its only the rich who can afford to buy significant amount of merchandise hence companies usually in doing their market surveys tend to concentrate on potential disposable incomes. But you see there are very few rich people in developing countries as earlier pointed out. On aggregate therefore consumption by the rich is negligible. Besides we also learn in economics that rich people have a low marginal propensity to consume.In a nutshell to succeed in a developing country like Botswana location is very important. Specifically you ought to locate your business nea... 2009-12-13 16:49:24 http://www.baitshepi-tebogo.com/page2.htm#54440 Its that time of the year when most young city dwellers are frantically organising to go to their masimo and meraka. For most they would have been busy working in the city the whole year with little opportunity to visit their parents and relatives back in the rural areas. So come christmas the city of Gaborone becomes almost deserted. You can literally stand in the middle of what used to be a traffic jammed highway for 5 minutes without seeing any vehicle coming your way.So business can sometimes be bad in Gaborone this time of the year. On the contrary this time usually brings a lot of joy for farmers in the rural areas. It is time for celebration and goats and chickens get slaughtered as most Batswana relish goat meat and Tswana chicken. For the aspiring young farmers it is not a bad idea to venture into farming. Agriculture is basically one industry one cannot regret by going into the returns are enormous. In fact the Botswana Development Corporation a parastatal organisation has pu... 2009-12-12 20:26:17 http://www.baitshepi-tebogo.com/page2.htm#54382 It seems that everyone is catching a fever on these bailouts. As I recall the US government came up with a stimulus package to shore up American companies mostly banks. The reason was to make credit easily available so that companies could have access to financing and therefore produce. You see if government injects money into an economy production goes up and jobs are created. The increase in employment tends to lead to an increase in aggregate demand which in turn leads to further increases in production consumption and more jobs. As more and more people are employed there is more money available to households which can potentially be used for more consumption. This is called the multiplier effect and it gets repeated over and over. In the US there are signs that it is beginning to work. I am yet to be educated on whether we had a credit crunch here in Botswana. I know a lot of our financial institutions are multinational and their parent companies would have been afffected. But s... 2009-12-11 15:37:36 http://www.baitshepi-tebogo.com/page2.htm#54332 I can not recall any time before where a private company has suspended production because food containers have expired. This is something to be hailed. I mean upon realising that some of the bottles have passed their expiry dates the company decided to suspend production until suitable ones were acquired. I remember in the past some private companies used to temper with labels on food items to change expiry dates. However I must commend public corporations for setting an example. Take the Botswana Meat Commission for example. They deal in meat products for export and every time there is any possibility of foot and mouth outbreak they shut their production facilities until there are certain the disease has been eradicated. Good job Kgalagadi Breweries 2009-12-11 05:28:51 http://www.baitshepi-tebogo.com/page2.htm#54302 I cant help but wonder as I shopped with my younger daughter at The Game City Mall. It was clear that business is strong and a lot of people cant get enough of what is available. No wonder the Game City Mall is expanding. Actually the same type of activity can be witnessed at the River Walk Mall and Molapo Crossing. Could this be proving the pundits wrong. I remember a few year ago 5 years some of the pundits were expressing concern that so many investors seemed to be putting a lot of their investments in building shopping complexes. Their concerns were whether there would be sufficient business generated to cover the costs of such investments. This sort of remind me of the not uncommon errors we keep on making. That is we tend to think small when the rest of the world has a bigger picture. Investments by the way are not costs but represent future value creation. If we always think in terms of costs we are likely to make dysfunctional decisions and focus on short term gains. 2009-12-10 16:09:38 http://www.baitshepi-tebogo.com/page2.htm#54285 This is a thought provoking heading but as world leaders converge in Copenhagen to consider how to deal with global warming it is probably worthwhile to take a pause and consider whether we are being environmentally friendly. The talk is more about carbon because it has been found that the rise in the amount of carbon gases released into the atmosphere increases world temperatures. Consider that with the fact that we cut a lot of trees Thats a recipe for disaster. Trees by the way use carbon dioxide for photosynthesis. So next time you cut trees have this in mind. On a related note one of the ways Botswana can contribute to this green campaign is to improve our public transport system. That way most of us would use public transport rather than our cars. Have you noticed that most of the times you will find only one occupant in a car whilst we experience terrible traffic jams in the morning. What about having a monorail system I mean Botswanas first underground railyway system. This... 2009-12-10 11:32:02 http://www.baitshepi-tebogo.com/page2.htm#54277 I am sitting around thinking about my next move. That is where am I taking The Learning Village I have already registered the company and it is incorporated. I am yet to open a bank account and register for both the income tax and the value added tax. After that what I would likely have to wait and do a lot of marketing for the company. I may be sounding pessimistic but it doesnt appear as if the future is that bleak though. I am very hopeful that the next year would bring a lot of business opportunities. The economy is growing and looking around it doesnt appear as though the world economic crisis has hit Botswana that much. A lot of construction activities are taking place and the new CBD is taking shape. In finance we know that the more you take on risk the more rewards are likely to come your way. There is that positive correlation that all finance people would tell you about. By the way these were my reflections for the day as I sat around and read an article on Economics and K... 2009-12-10 10:27:18