Diploma in Business Competence Learning outcomes for the Diploma in Business Competence (EBCL)
Section 1: Understanding Business Accounts Overall Learning Objectives Upon completing this section you will be able to: Read and understand annual financial statements (balance sheet, profit and loss account) in principle and draw first conclusions. Explain the most relevant terms found in annual financial statements. Detailed Learning Outcomes Learning Outcome Candidates will be able to: 1. Function and Structure of a balance sheet To include : purpose of a balance sheet and how to draw appropriate conclusions when interpreting it for a business. Underpinning Knowledge The purpose of the balance sheet. The layout of the balance sheet. The reasons why the balance sheet must always balance. How to interpret the financial information contained in the balance sheet. 2. Assets assets in a business context. 3. Equity and liabilities s equity and liabilities in business. Definition of the term assets and examples of them. Understand what is meant by the assets side of the balance sheet. Fixed assets Current assets. Definition of the terms equity and liabilities including examples of them. Understand what is meant by the liabilities side of the balance sheet. Equity capital. Loan capital. Current liabilities. Education & Media Services Ltd 2005. page 2
4. Inventory/Stocks purpose and importance of stocktaking. 5. Profit and Loss (on balance sheet) terms profit and loss. 6. Accruals accruals and their importance in business. A definition of the terms Inventory and Stocks. The importance of drawing up an inventory (stocktaking). The steps to be taken in drawing up an inventory. A definition of the terms profit and loss. The purpose of the profit & loss account. Where profits and/or losses are shown on the balance sheet. The impact of profit and/or loss on a business. A definition of the term accruals. The possible effects of accruals on cash flow throughout the year. 7. Debtors and Creditors s debtors and creditors and be able to identify them correctly in the annual financial statements. 8. Provisions Understand and explain provisions and their importance in business A definition of debtors and creditors. Their importance in understanding a businesses financial situation. Where to find them in financial statements. A definition of provisions. The reason for making provisions. The setting up of provisions. The difference between provisions and creditors. Education & Media Services Ltd 2005. page 3
9. Reserves reserves and be able to identify it correctly in the business accounts. 10. Depreciation depreciation and be able to identify appropriate methods of calculation. 11. Capital expenses capital expenditure and how it may appear in the accounts. differences between the following types of expense. A definition of reserves. Their importance in understanding a business financial situation. How and why reserves are set up. An explanation of the difference between provisions and reserves. Where to find reserves in financial statements. A definition of depreciation. How to calculate linear depreciation and when to use it. When to use the reducing balance method. Being able to identify the correct method of depreciation applicable to different assets. A definition of capital expenditure. Be able to identify which expenses must be capitalised on the balance sheet and the reasons why. Be able to identify expenses that can be entered on the profit and loss account in full and the reasons why. A definition of what low value assets are, and when they can be written off. Expenses that must be capitalised. Expenses that that can be directly written off. 12. The P&L Account Education & Media Services Ltd 2005. page 4
purpose of a profit and loss account and be able to analyse it. following terms in relation to a profit and loss account. Understand, explain and demonstrate comparisons of business performance using formulae where appropriate. A definition of profit. A definition of loss. An explanation of the purpose of a profit and loss account. An understanding of the structure of a profit and loss account. Being able to analyse a profit and loss account. Operating profit or loss Profit or loss on ordinary activities. Extraordinary result. Profit or loss before interest and tax (PBIT) Profit or loss before tax (PBT) and profit/loss for the year Distributable profit. Operating profit or loss. Profit or loss on ordinary activities. Extraordinary result. Pre tax profit or loss. Profit or loss for the year. Distributable profit using the basic underlying formula. 13. Analysis of the P&L Understand, explain and demonstrate how the following may be generated an operating profit or loss a profit or loss on ordinary activities a pre-tax profit or loss the two basic options for using the profit for the year. 14. Analysis of financial statements Understand explain and analyse simple financial statements Reading simple financial statements Analysing and understanding a series of simple financial statements Education & Media Services Ltd 2005. page 5
Section 2: Measuring Business Performance Overall Learning Objectives Upon completing this section, you will be able to: most important performance objectives of a company. Explain and calculate performance ratios corresponding to those objectives. Detailed Learning Outcomes Learning Outcome Candidates will be able to: 1. Return on equity equity and its importance in measuring business performance. Underpinning Knowledge A definition of return on equity. Calculation of the return on equity. The relationship between equity and profit The evaluation and classification of any return on equity achieved. 2. Return on Investment (ROI) return on investment (ROI) and its importance in measuring business performance. 3. Liquidity liquidity and its importance in measuring business performance 4. Equity Ratio / Gearing equity ratio and the debt/equity ratio and why they are of central importance in measuring business performance. A definition of the term Return on Investment (ROI). Calculation of the return on investment. An evaluation of whether an adequate ROI has been achieved. A definition of the terms liquidity and liquid funds. Identification of liquid funds in annual financial statements. A definition of liquidity shortage and an understanding of its consequences. Calculation of the cash ratio and identification of appropriate levels. Calculation of the quick ratio (acid test) and identification of appropriate levels. Calculation of the current ratio and identification of appropriate levels. The relative importance of liquidity and profitability A definition of the equity ratio. Calculation of the equity ratio. Education & Media Services Ltd 2005. page 6
A definition of the debt/equity ratio. Calculation of the debt/equity ratio The reasons why the equity ratio and debt/equity ratio are of central importance in measuring business performance. 5. Cash Flow Understand, explain and calculate cash flow 6. Return on Sales return on sales, be able to calculate it and to show the importance of this in measuring business performance. 7. Productivity productivity and its importance in measuring business performance. A definition of cash flow. Calculation of a business cash flow. A definition of the term return on sales. Calculation of return on sales. The reasons why the return on sales is of central importance to a business. A definition of productivity. The reasons why it is important for a business to achieve high productivity. The importance of productivity in measuring business performance. Education & Media Services Ltd 2005. page 7
Section 3: Costing and Pricing Overall Learning Objectives Upon completing this section you will be able to: Explain the most important objectives, tasks and key terminology of cost accounting. Explain the general factors for entrepreneurial decisions (markets, customers, competition, cost of sales). Explain the significance of the contribution margin as a central term in cost accounting, and compute it. Explain the objectives and basic structure of cost accounting and profit centre accounting, and give reasons why cost awareness and entrepreneurial thinking are necessary. Detailed Learning Outcomes Learning Outcome Candidates will be able to: 1. Tasks of Cost Accounting objectives of cost accounting and be able to explain the difference between cost accounting and financial accounting. 2. Terms of Cost Accounting Understand, explain, define and give examples of the following terms. Underpinning Knowledge A definition of cost accounting. A definition of financial accounting. The differences between financial accounting and cost accounting. The reasons why it is necessary to adjust figures when taking figures from financial to cost accounting. Cost elements. Cost centre. Cost unit. Direct costs (also called: prime costs) Overhead costs (also called: indirect costs or overheads) Fixed costs Variable costs Marginal cost The difference between full cost accounting and direct cost accounting. Education & Media Services Ltd 2005. page 8
3. Pricing importance of pricing in business and factors which must be taken into account when pricing products 4. Cost centre accounting purpose of cost centre accounting The various market forms (monopoly, oligopoly, and perfect competition). The interaction between supply and demand, and the concepts of the equilibrium and market price. Being able to attribute price margins to the various market forms and understand why these are appropriate. The factors which may significantly influence the price of a product or service. The calculation of the price of a product or service. A definition of the term contribution (margin) and an understanding of its significance. The calculation of the contribution (margin) for a product or sale. The effect of the contribution (margin) on the calculation of price. The effect of a positive or negative contribution margin on the operating result. The difference between short term and long term break even price. The effect of marginal cost on establishing a special price (to take up surplus capacity or stocks) Describe, list and state the purpose of different pricing strategies (premium pricing; promotion pricing; price skimming; penetration pricing). Explain the positive and negative effects of an aggressive pricing policy. The calculation of price for given levels of contribution at different sales volumes. A definition of cost centre accounting. The purpose of cost centre accounting. Calculation of the costs for a cost centre. The purpose of an overhead allocation sheet and its structure. Cost allocation for internal and shared services. Education & Media Services Ltd 2005. page 9
5. Profit centre accounting purpose and basic structure of profit centre accounting in business The purpose and basic structure of profit centre accounting. Calculation of the contribution for a profit centre. The reasons why a positive contribution from a profit centre cannot be equated with profit. Measures to improve the contribution of a profit centre. Education & Media Services Ltd 2005. page 10
Section 4: Introduction to Business Law Overall Learning Objectives Upon completing this section you will be able to: Explain the characteristics, advantages and disadvantages of the principle legal forms of business organisation List the legal requirements for setting up and running a company Explain the principle legal restrictions on operating a business in the UK Detailed Learning Outcomes Learning Outcome Candidates will be able to: 1. Fundamentals different legal forms of business organisation and the principle differences between them 2. Different business forms Understand and explain the principle characteristic features, advantages and disadvantages of the differing business forms Underpinning Knowledge The reasons for the existence of the different legal forms of business. A definition and explanation of the different legal forms of business. A definition and explanation of the terms; personal unlimited liability; joint and several liability; limited liability. The principle difference between partnerships and incorporated firms. Sole trader Ordinary Partnership Limited Partnership Limited Company Public Limited Company Education & Media Services Ltd 2005. page 11
3. Control of Limited Companies legal structure and control systems of a limited company. 4. Reporting for Limited Companies methods and importance of reporting for a limited company. 5. Contract Law reasons for and the content of a contract of law. 6. Insolvency law insolvency, its effect on business and the possible causes of it. The roles and responsibilities of the: Shareholders; Board; Directors; Company Secretary. An explanation of the terms: share; nominal share value; Memorandum and Articles of Association; Annual and Extra-Ordinary General Meetings; Ordinary and Special Resolutions. The term Annual Return and its importance. The reporting requirements for annual Accounts. The purpose of an Audit and the role of an Auditor. The level of Auditing required for different types of business. Contract and Parties. Agreement. Consideration. The importance of ensuring that a signatory has authority to sign. Insolvency Trading as insolvent The most common causes of insolvency. Education & Media Services Ltd 2005. page 12
7. Employment Law principle features of a contract of employment and their importance. 8. Banking following terms in relation to business banking. 9. Business Taxation Understand and explain how the payment of tax may vary depending on the type of business being operated. The key features of a Contract of Employment. A definition and explanation of the terms: constructive dismissal, unfair dismissal, equal opportunities and discrimination. The obligations of an employer under the terms of the Health and Safety at Work Act. Loan documentation. Personal guarantee. Different tax treatment for sole traders, limited companies, and partnerships. An explanation of the terms, Value Added Tax (VAT), Pay as you Earn (PAYE), National Insurance Contribution (NIC) and Corporation Tax. Education & Media Services Ltd 2005. page 13