再也不用担心考了ACCA，找不到实习了

Moonstar Co is a property development company which is planning to undertake a $200 million commercial property development. Moonstar Co has had some difficulties over the last few years, with some developments not generating the expected returns and the company has at times struggled to pay its finance costs. As a result Moonstar Co’s credit rating has been lowered, affecting the terms it can obtain for bank finance. Although Moonstar Co is listed on its local stock exchange, 75% of the share capital is held by members of the family who founded the company. The family members who are shareholders do not wish to subscribe for a rights issue and are unwilling to dilute their control over the company by authorising a new issue of equity shares. Moonstar Co’s board is therefore considering other methods of financing the development, which the directors believe will generate higher returns than other recent investments, as the country where Moonstar Co is based appears to be emerging from recession.

Securitisation proposals

One of the non-executive directors of Moonstar Co has proposed that it should raise funds by means of a securitisation process, transferring the rights to the rental income from the commercial property development to a special purpose vehicle. Her proposals assume that the leases will generate an income of 11% per annum to Moonstar Co over a ten-year period. She proposes that Moonstar Co should use 90% of the value of the investment for a collateralised loan obligation which should be structured as follows:

– 60% of the collateral value to support a tranche of A-rated floating rate loan notes offering investors LIBOR plus 150 basis points

– 15% of the collateral value to support a tranche of B-rated fixed rate loan notes offering investors 12%

– 15% of the collateral value to support a tranche of C-rated fixed rate loan notes offering investors 13%

– 10% of the collateral value to support a tranche as subordinated certificates, with the return being the excess of receipts over payments from the securitisation process

The non-executive director believes that there will be sufficient demand for all tranches of the loan notes from investors. Investors will expect that the income stream from the development to be low risk, as they will expect the property market to improve with the recession coming to an end and enough potential lessees to be attracted by the new development.

The non-executive director predicts that there would be annual costs of $200,000 in administering the loan. She acknowledges that there would be interest rate risks associated with the proposal, and proposes a fixed for variable interest rate swap on the A-rated floating rate notes, exchanging LIBOR for 9·5%.

However the finance director believes that the prediction of the income from the development that the non-executive director has made is over-optimistic. He believes that it is most likely that the total value of the rental income will be 5% lower than the non-executive director has forecast. He believes that there is some risk that the returns could be so low as to jeopardise the income for the C-rated fixed rate loan note holders.

Islamic finance

Moonstar Co’s chief executive has wondered whether Sukuk finance would be a better way of funding the development than the securitisation.

Moonstar Co’s chairman has pointed out that a major bank in the country where Moonstar Co is located has begun to offer a range of Islamic financial products. The chairman has suggested that a Mudaraba contract would be the most appropriate method of providing the funds required for the investment.

Required:

(a) Calculate the amounts in $ which each of the tranches can expect to receive from the securitisation arrangement proposed by the non-executive director and discuss how the variability in rental income affects the returns from the securitisation. (11 marks)

(b) Discuss the benefits and risks for Moonstar Co associated with the securitisation arrangement that the non-executive director has proposed. (6 marks)

(c) (i) Discuss the suitability of Sukuk finance to fund the investment, including an assessment of its appeal to potential investors. (4 marks)

(ii) Discuss whether a Mudaraba contract would be an appropriate method of financing the investment and discuss why the bank may have concerns about providing finance by this method. (4 marks)

(ii) Briefly discuss FOUR non-financial factors which might influence the above decision. (4 marks)

Glove Co makes high quality, hand-made gloves which it sells for an average of $180 per pair. The standard cost of labour for each pair is $42 and the standard labour time for each pair is three hours. In the last quarter, Glove Co had budgeted production of 12,000 pairs, although actual production was 12,600 pairs in order to meet demand.

37,000 hours were used to complete the work and there was no idle time. The total labour cost for the quarter was $531,930.

At the beginning of the last quarter, the design of the gloves was changed slightly. The new design required workers to sew the company’s logo on to the back of every glove made and the estimated time to do this was 15 minutes for each pair. However, no-one told the accountant responsible for updating standard costs that the standard time per pair of gloves needed to be changed. Similarly, although all workers were given a 2% pay rise at the beginning of the last quarter, the accountant was not told about this either. Consequently, the standard was not updated to reflect these changes.

When overtime is required, workers are paid 25% more than their usual hourly rate.

Required:

(a) Calculate the total labour rate and total labour efficiency variances for the last quarter. (2 marks)

(b) Analyse the above total variances into component parts for planning and operational variances in as much detail as the information allows. (6 marks)

(c) Assess the performance of the production manager for the last quarter. (7 marks)