BSBFIM601 Manage Finances Assignment

BSBFIM601 Manage Finances Assignment

BSBFIM601 Manage Finances Assignment

Task 1:  Prepare budgets

Part 1: Develop budget

Sales Budget

Refer to excel workbook BSBFIM601 - houzitbudget

Profit Budget

Refer to excel workbook BSBFIM601 - houzitbudget

Cash flow Budget

Refer to excel workbook BSBFIM601 - houzitbudget

Debtor ageing summary

Refer to excel workbook BSBFIM601 - houzitbudget

Budget Notes

Identify of reasons for previous profits and loss

State some reasons for previous profit and loss

The profit budget shows that profit and loss earned by the company Houzit Pty. and the changes which have incurred in the figures of incomes and expenditures form the last year. There has been an increase in the inflation rate and therefore an assumption has been made that the expenditure has increased by 4%. The other assumption has been made that the gross profit of the company has decreased by 1%. The fixed expenses incurred during the year have been allocated equally to each quarter (Tappura, et. al., 2015). There are various changes identified in the profit budget which includes the increase in the advertisement expenditure of the company by $70000 and the introduction of royalty tax due to the purchase of the royal car. Also, there has been a payment of $100000 due to which expenses of the company has decreased.

Reasons for existing financial management approaches not effective

State some reasons for existing financial management approaches not effective

  • The reason behind the non-effectiveness of financial management approaches includes unavailability of adequate information, unnecessary expenditure, lack of market research and others.

Assumptions and based used to form this budgets

State assumptions and based used for this budget

  • An assumption has been made during the year that the debtors of the company represent 20% of the sales made during each of the quarter. The debtors have been recognized on a similar basis for each of the quarter and the way of the collection has also been represented for the same (Tappura, et. al., 2015). It can be observed that with the increase in the sales the debtors of the company has also increased with the proportionate amount and therefore there is a need to modify the current credit policy of the company.

Key points that must be followed during the  Implementation and Monitoring the budget expenditure

State key points that must follow during the implementation and monitoring the budget expenditure.

  • The GST expenditure has been estimated on the basis of expenses incurred during the year. The GST credit has been deducted from the current tax liability of the company which represents the tax credit of the last year. The GST calculated for the whole year has been segregated on the basis of sales made during each quarter and the tax liability has been calculated accordingly (Takeda &Boyns, 2014).

Part 2: Series of Questions

  1. Identify the current statutory requirements for tax compliance and list and calculate the tax liabilities for Houzit Pty Ltd under taxation legislation.

The Houzit Pty. Ltd. needs to comply all the regulatory requirements of the government in order to avoid the intervention of government in company matters. The tax liability of the company will be calculated on the basis of tax law applicable to the company. The various financial statement of the company has to be prepared in accordance with the AASB accounting standards and the tax shall be calculated on the net income obtained after deducting all the expenses. The company is not applying the industrial wage rate in the calculation of payroll and therefore there is a need to revise the same (Yang, et. al., 2016). 

Company Tax:

The company tax payable by the company for the year 2011-12 is $ 466867.

Capital Gain Tax:

The capital gain tax has been determined in accordance with the long-term gains obtained by the company.

Goods and Service Tax:

The GST payable by the company has been ($147661).

Payroll Tax:

The payroll tax as payable by the company has been $ 98705.

  1. Identify the current compliance requirements and liabilities for this organisation under the Corporations Act 2001.

Proprietary limited:

The proprietary has to comply with various compliance tools in order to avoid the legal issues to be faced due to compliance with Corporation Act 2001 and they are recognized as follows:

ASIC:

The proprietary has to comply with various compliance tools in order to avoid the legal issues to be faced due to compliance with Corporation Act 2001 and they are recognized as follows:

Compliance tools: Auditing standards – The Corporation Act requires the proprietary to regular appoint an auditor for auditing the accounting work of the company along with its financial statement so that any deficiencies and discrepancies can be identified and corrected accordingly.

  1. Review commercially available financial management software to select the most suitable software for Houzit Pty Ltd.

 

Ensure you diagnose software options by comparing two commercially available software titles against the capabilities of the existing technology for the organisation and against the prioritised requirements, and outline the reasons that lead you to this recommendation.

The financial management software will enable the management of the company Houzit Party. to record the transactions of the company accurately and timely. The various financial management software’s are discussed and the recommendation has been made accordingly.

MYOB:

The MYOB accounting system is a single user entry-level bookkeeping system which is most suitable for the micro level businesses. There are integrated modules available in this type of software. The accounting software remains up to date with ATO and provides easy and fast tax updates (Soheilirad&Sofian, 2016).

XERO:

XERO can be represented as the online accounting software for the business concerns. The software helps in identifying the real-time cash flows of the company and provides various additional features like invoicing & quotes, bank reconciliation and maintaining records of the inventory. 

Excel: The excel is a complete accounting solution for the small business concerns which provides benefits such as no complex accounting terms, maintenance of the accounting book with the aid of ease and no required set of accounting or bookkeeping knowledge or skill is required.

Recommendation for Houzit: The Houzit Pty Ltd should adopt and purchase XERO software as the software will enable the company to have a real-time access to the cash flows of the company and the online accounting software will enable the company to remain updated all the time. The current accounting software needs to be replaced and the add-on must be made to the accounting system of the company (Yang, et. al., 2016).

  1. Explain how you can apply the following principles of accounting in developing the budgets required for this task:

 

Matching principle:

The matching principle of the accounting refers to the principle that the expenses should be recognized in the same period when the revenues related to those expenses are recognized in the financial statements. The company has used this principle in order to maintain the transparency in accounts.

Account groups:

It refers to the summary of the account based on the criteria how master records are created and determine the number of intervals from which account is created from the GL. In the preparation of financial records, the company has utilized the past information related to various accounts (Otley& Emmanuel, 2013).

Time periods: The time period of the accounting groups will help the company in differentiating and obtaining the results obtained in various time frames of the company. The results obtained will then be utilized for further evaluation and decision making purposes.

  1. Explain and discuss the implications of probity when preparing and revising budgets.

Ethics: Probity has been referred as the evidence of ethical behavior and can be determined as confirmed and complete integrity, honesty and uprightness in the particular process of budgeting. 

Responsibility: The responsibilities are concerned with the adoption of innovative approaches and require internal expertise in the process of preparing and revising the budgets for estimation and forecasting purposes of management (Hoppe & Henderson, 2015).

Decency: The mechanism for applying probity in budgeting process shall be applied decently and sensible while it should not be utilized for avoiding reasonable discussions.

Conflict of Interest: For avoiding the conflict of interest officials must not use their position and their potential for various claims should not be biased. The conflicts of interest must be managed appropriately by the management. The official must not accept any personal benefits.

  1. List the critical dates and initiatives that will require or generate resources for Houzit Pty Ltd in the next financial cycle.

Planning your financial year in detail will allow you to make the most of busy and slow periods and manage your finances accordingly.

The dates mentioned in the budgets and the time periods selected are crucial for the next accounting cycle of the business and there is the need for the management of the company to recognize appropriate time periods for preparation of accurate and adequate accounting records. This will enable the management in analyzing the current position of the company and allocating the resources accordingly to various processes and departments of the company (Hill, et.al., 2014).

  1. List the items you would recommend for inclusion in the budgets for Houzit Pty Ltd.

Pensions – The pension provided by the company to its employees will be recognized as a major expenditure for employee benefits in the company (Hoppe & Henderson, 2015).

1. Healthcare – The healthcare facilities provided to the employees and staff of the company needs to be included in the expense item of the company.

2. Travel – The travel expenses which are related to professional's engagements and trails of the management and employees have to be included in the budgets and should be recognized properly.

3. Training fees – The training fees should be recognized as an administrative expense for the company for making its employees efficient and suitable for the job (Granlund&Lukka, 2017).

  1. List the new or modified internal controls that could improve risk management for Houzit Pty Ltd including the maintenance of audit trails.

The internal controls that could improve risk management for Houzit:

  • Petty Cast:
  • Refund:
  • Cash Control:
  • Resource Ordering:
  • Recording Transaction:
  • Audit trails:

Task 2: Monitor and review budget

Develop a variance report

Refer to excel workbook BSBFIM601 –houzitbudget

Complete a cash flow analysis

Refer to excel workbook BSBFIM601 –houzitbudget

Executive Summary

The GST expenditure has been estimated on the basis of expenses incurred during the year. The GST credit has been deducted from the current tax liability of the company which represents the tax credit of the last year. The GST calculated for the whole year has been segregated on the basis of sales made during each quarter and the tax liability has been calculated accordingly (Takeda &Boyns, 2014).

Introduction

 

The GST expenditure has been estimated on the basis of expenses incurred during the year. The GST credit has been deducted from the current tax liability of the company which represents the tax credit of the last year. The GST calculated for the whole year has been segregated on the basis of sales made during each quarter and the tax liability has been calculated accordingly (Takeda &Boyns, 2014).

Main Contents

At the start of every quarter there is a set goals of company for which management make their inputs and perform different activities. At the end of the quarter they analyse their results by comparing the actual results with their set standard results. The difference in the results after comparison termed as variance and it can be favourable or unfavourable.

Variance analyse is made in order to evaluate the overall performance
whether they are going in the targeted direction or not. It helps in identifying the issues and help the management to focus over key areas.

Issues Analysis

 

Identify, describe and prioritise significant issues that are evidenced in the provided case study information and describe reasons or causes of these issues. Include in this issues of financial probity that you have identified or considered when monitoring these budgets.

Issues

Details

Reason

Priority

Economy recession

Economy is under recession face and sales are not growing as per the budget

Slowdown in investment growth and increasing interest rates

1

Interest rate increase

Due to recession

It will impact the interest payout directly

6

Advertising budget

Review required

A review of the advertising budget to allocate additional cost should be prepared.

2

Price discounts

Required to attract customers

An attractive discount scheme will attract customers and increase sales volumes

5

Financial probity – bonus sharing scheme

Linked to the performance

A higher profit will lead to better payouts from the company.

3

Financial probity – Performance review

Linked to budgeted values

Due to efficiency in reporting, the performance review will represent a better picture of the same.

4

Variances

 

Variance budget quarter 1

 

 

 

 

 

PROFIT BUDGET

Qtr 1

Actual- Qi

variance

variance %

Favorable or Unfavorable

Revenue

20%

100%

 

 

 

Sales

33,94,247

3371200

23,047

0.679001852

U

– Cost of Goods Sold

                      19,00,779

19,55,296

-54,517

-2.868139852

U

Gross Profit

                      14,93,468

14,15,904

77,564

5.19354951

U

Gross Profit %

44%

42%

0

4.545454545

U

Expenses

 

 

0

#DIV/0!

 

– Accounting Fees

                            10,000

2,500

7,500

75

F

– Interest Expense

                            21,127

28,150

-7,023

-33.24182326

U

– Bank Charges

                                  400

380

20

5

F

– Depreciation

                            42,500

42,500

0

0

 

– Insurance

                              3,348

3,348

-1

-0.01493652

U

– Store Supplies

                                  750

790

-40

-5.361429715

U

– Advertising

                        2,00,000

1,50,000

50,000

25

F

– Cleaning

4,006

3,325

681

17.00364435

F

– Repairs & Maintenance

                            16,068

16,150

-82

-0.510331093

U

– Rent

                        6,60,127

6,60,127

0

0

 

– Telephone

                              2,999

3,100

-101

-3.367789263

U

– Electricity Expense

                              5,366

5,245

121

2.254938502

F

– Luxury Car Tax

                              12000

12,000

0

0

 

– Fringe Benefits Tax

                              7,000

7,000

0

0

 

– Superannuation

                            37,404

37,404

0

0

 

– Wages & Salaries

                        4,15,600

4,10,500

5,100

1.227141482

F

– Payroll Tax

                            19,741

19,741

0

0

 

– Workers’ Compensation

                              8,312

8,312

0

0

 

Total Expenses

                      14,57,848

14,10,572

47,276

3.242828897

F

Net Profit (Before Tax)

                            26,721

5,333

21,388

80.0419146

U

Income Tax

                              8,016

1,600

6,416

80.04066714

F

Net Profit

                            18,705

3,733

14,972

80.04244922

U

GST cash flow variance analyse:

GST Cash flow variance analysis

CASH FLOW ANALYSIS – GST

Budgeted

actual

variance

variance %

GST Collected

33,943

3,37,120

-3,03,178

-893.209104

Less GST Paid

90266

2,79,988

-1,89,722

-210.181021

GST Payable

-56,324

57,132

809

-1.43545767

Debtor aging ratio

Debtor Analysis

Particulars

2009/10

2010/11

2011/12

Trade Debtors

850,000

975,000

1053000

Sales

14,550,100

15,714,108

16971237

Debtor Days

21

23

23

Performance

The overall performance of the business is not satisfactory as they are not able to get the set profits The results are unfavourable and instead of getting huge profits they are getting minimum share of profits.

Recommendation

It should be recommended that the management of the company should consider the economic impact on the business activities of the company. The advertisement expenditure of the company should be controlled in the way that it meets out the benefits accruing from it and the sales targets are achieved accordingly. The SGHT liability of the company was wrongly estimated and the same should be carefully estimated in the next quarter so that accurate cash flows can be identified. The problem can be carved out with the implementation of new accounting software which will enable the correct recording and estimation of transactions (Granlund&Lukka, 2017).

Evaluation

Provide a summary review of the financial management processes in place for the organisation, in light of your assessment of the issues, reasons for variances and organisational performance you have identified. Include in this section any recommendations you have for modifying management processes.

Conclusion

The management of the company should adopt the appropriate strategies in order to achieve the required sales targets and appropriate pricing policies should be implemented in order to avail the accurate price discounts to the various customers of companies. The advertisement expenditure needs to be controlled in a way that the benefit accruing exceeds the cost associated with it. 

References

· Fullerton, R. R., Kennedy, F. A., & Widener, S. K. (2013). Management accounting and control practices Sociein a lean manufacturing environment. Accounting, Organizations and ty38(1), pp. 50-71.

· Granlund, M., &Lukka, K. (2017). Investigating highly established research paradigms: Reviving contextuality in contingency theory-based management accounting research. Critical Perspectives on Accounting45, pp. 63-80.

· Hill, C. W., Jones, G. R., & Schilling, M. A. (2014). Strategic management: theory: an integrated approach. Cengage Learning.

· Höglund, L., Holmgren Caicedo, M., Mårtensson, M., &Svärdsten, F. (2016). Management accounting of control practices: a matter of and for strategy. In the 9TH INTERNATIONAL EIASM PUBLIC SECTOR CONFERENCE, held in LISBON, PORTUGAL, SEPTEMBER 6-8, 2016..

· Hoppe, M., & Henderson, B. (2015). Strategic inter-organizational management accounting-A case study at LantmännenMaskin.

· Soheilirad, S., &Sofian, S. (2016). A proposed model of the mediating effect of strategic management accounting on the relationship between perceived environmental uncertainty and firm performance. International Journal of Research–Granthaalayah4(1), 231-239.

Role Play

 

Role Play:

Jim Schnieder: Good Morning all.

Finance Manager: Good Morning, Sir.

Jim Schnieder: How the company is performing as per your financial report?

Finance Manager: Sir, There are mixed results some of them are unfavourable and favourable.

Jim Schnieder: What are areas of improvements in relation to cost?

Finance Manager: Sir, Due to increase in the cost of goods sold, our revenue goes down and turned into the loss. We have to control the overall cost of production and have to increase profit margin.

Jim Schnieder: Any other Suggestion?

Finance Manager: It can be observed from the above budget that despite expending huge expenditure on the sales promotion and advertisement activities the company has not been able to achieve the desired sales which have been a result of the economic slowdown recognized in the market. The same requires the efforts to be made in the advertisement sector for efficient operations to be conducted. Also, the cost of goods sold needs to be controlled by the company which has been $54517 in this quarter.

The decrease in the rates also had a significant impact on the results of the company. The accounting fees of the company noticed 75% decrease and the bank charges which increased in the quarter were not significant for the company. The other administrative expenses of the company including rent, electricity and other charges have been in control and there is no need to control these expenditures.

The cash flow analysis of the company shows that the cash profits obtained by the company which is $6416 has been low in comparison to the standard profits determined and this has been the result of the increase in the cost of goods sold and increased expenditure of advertisement. The price discounts availed by the company to its customers should be based on the appropriate pricing policy and the objective of maximizing profits to be achieved should be fulfilled (Hoppe & Henderson, 2015).

The management of the company was not able to estimate the correct income tax liability of the company. The same has been lower in actual figures when compared to budgeted figures. Therefore the company needs to estimate the correct amount of liability of tax by the company. The financial probity including bonus sharing has a huge impact on the profits of company and performance review has been performed to analyse the variances (Höglund, et. al., 2016).