|Assessment Task 1|
Annual budget with budget components
Sales & profit budget
|Houzit Sales and Profit Budget FY 2011/12|
|Particulars||2011/12||Q 1||Q 2||Q 3||Q4|
|Sales|| $ 1,69,71,237|| $ 33,94,248|| $ 40,73,097|| $ 44,12,521|| $ 50,91,371|
|– Cost of Goods Sold|| $ 96,53,274 || $ 19,30,655 || $ 23,16,786 || $ 25,09,851 || $ 28,95,982 |
|Gross Profit|| $ 73,17,962|| $ 14,63,593|| $ 17,56,311|| $ 19,02,670|| $ 21,95,388|
|Gross Profit %||43.12%||43.12%||43.12%||43.12%||43.12%|
| Accounting Fees|| $ 10,000|| $ 2,500|| $ 2,500|| $ 2,500|| $ 2,500|
|Interest Expense|| $ 84,508|| $ 21,127|| $ 21,127|| $ 21,127|| $ 21,127|
|Bank Charges|| $ 1,600|| $ 400|| $ 400|| $ 400|| $ 400|
|Depreciation|| $ 1,70,000|| $ 42,500|| $ 42,500|| $ 42,500|| $ 42,500|
| Insurance|| $ 13,390|| $ 3,348|| $ 3,348|| $ 3,348|| $ 3,348|
|Store Supplies|| $ 3,749|| $ 750|| $ 900|| $ 975|| $ 1,125|
|Advertising|| $ 3,50,000|| $ 2,00,000|| $ 50,000|| $ 50,000|| $ 50,000|
|Cleaning|| $ 16,282|| $ 3,256|| $ 3,908|| $ 4,233|| $ 4,885|
|Repairs & Maintenance|| $ 64,272|| $ 16,068|| $ 16,068|| $ 16,068|| $ 16,068|
|Rent|| $ 26,40,508|| $ 6,60,127|| $ 6,60,127|| $ 6,60,127|| $ 6,60,127|
|Telephone|| $ 14,997|| $ 2,999|| $ 3,599|| $ 3,899|| $ 4,499|
| Electricity Expense|| $ 26,780|| $ 5,356|| $ 6,427|| $ 6,963|| $ 8,034|
|Luxury Car Tax|| $ 32,164|| $ 6,433|| $ 7,719|| $ 8,363|| $ 9,649|
|Fringe Benefits Tax|| $ 28,000|| $ 7,000|| $ 7,000|| $ 7,000|| $ 7,000|
|Superannuation|| $ 1,87,020|| $ 37,404|| $ 44,885|| $ 48,625|| $ 56,106|
|Wages & Salaries|| $ 20,78,000|| $ 4,15,600|| $ 4,98,720|| $ 5,40,280|| $ 6,23,400|
|Payroll Tax|| $ 98,705|| $ 19,741|| $ 23,689|| $ 25,663|| $ 29,611|
|Workers’ Compensation|| $ 41,560|| $ 8,312|| $ 9,974|| $ 10,806|| $ 12,468|
|Total Expenses|| $ 58,61,535 || $ 14,52,921 || $ 14,02,891 || $ 14,52,876 || $ 15,52,847 |
|Net Profit (Before Tax)|| $ 14,56,427|| $ 10,672|| $ 3,53,420|| $ 4,49,794|| $ 6,42,542|
|Income Tax|| $ 4,36,928|| $ 3,201|| $ 1,06,026|| $ 1,34,938|| $ 1,92,763|
|Net Profit|| $ 10,19,499|| $ 7,470|| $ 2,47,394|| $ 3,14,856|| $ 4,49,779|
Cash flow budget
|GST Cash Flow Budget |
|Cash Flow Analysis||2011/12||Q 1||Q 2||Q 3||Q 4|
|GST Collected|| $ 16,97,124|| $ 3,39,425|| $ 4,07,310|| $ 4,41,252|| $ 5,09,137|
|GST Paid|| $ 13,11,489|| $ 2,88,939|| $ 3,14,086|| $ 3,34,159|| $ 3,74,306|
|GST payable|| $ 3,85,635|| $ 50,486|| $ 93,224|| $ 1,07,093|| $ 1,34,831|
Profit Loss Actual
|Houzit Pty Ltd|
|– Cost Of Goods Sold||68,60,901||74,09,773||80,02,555||87,99,900||9653274|
|– Accounting Fees||5,500||6,500||8,500||9,000||10000|
|– Interest Expense||45,000||65,000||96,508||90,508||84,508|
|– Bank Charges||1,200||1,300||1,580||1,600||1600|
|– Store Supplies||–||–||–||–||3749|
|– Repairs & Maintenance||40,250||52,600||60,000||61,800||64272|
|– Electricity Expense||22,500||23,658||25,000||25,750||26780|
|– Luxury Car Tax||–||–||12,400||–||32164|
|– Fringe Benefits Tax||26,000||26,000||26,000||28,000||28000|
|– Wages & Salaries||16,49,998||17,85,965||18,50,000||19,05,500||2078000|
|– Payroll Tax||78,375||84,833||87,875||90,511||98705|
|– Workers’ Compensation||33,000||35,719||37,000||38,110||41560|
|Net Profit (Before Tax)||8,43,220||10,44,554||12,15,982||14,56,428||1456427|
i. Analysis of the past cash flow trends
Debtor ageing summary
|Aged Debtors Budget |
|Aged Debtors Budget||Total ||Qtr 1||Qtr 2||Qtr 3||Qtr 4|
|Sales|| $ 1,69,71,237|| $ 33,94,247|| $ 40,73,097|| $ 44,12,522|| $ 50,91,371|
|% Debtors sales||20.0%||20.0%||20.0%||20.0%|
|Total debtors||100%|| $ 6,78,849|| $ 8,14,619|| $ 8,82,504|| $ 10,18,274|
|Current (84%)||84%|| $ 5,70,234|| $ 6,84,280|| $ 7,41,304|| $ 8,55,350|
|30 Days (10%)||10%|| $ 67,885|| $ 81,462|| $ 88,250|| $ 1,01,827|
|60 Days (5%)||5%|| $ 33,942|| $ 40,731|| $ 44,125|| $ 50,914|
|90 Days (1%)||1%|| $ 6,788|| $ 8,146|| $ 8,825|| $ 10,183|
|Debtor Ageing Ratio |
|Trade Debtors|| $ 8,50,000.00|| $ 9,75,000.00|| $ 33,94,247.33|
|Sales|| $ 1,45,50,100.00|| $ 1,57,14,108.00|| $ 1,69,71,236.64|
The debtor days ratio measures how quickly cash is being collected from debtors. The longer ratio shows the greater number of days in collecting from debtors like customers. Based on the above table, it can be determined that there is an increase in debtor days as company is adopting lenient policy for the customers by allowing them to pay their liabilities on longer duration.
However, it may cause an increase in number of customers due to longer debtor days but it may also cause lack of cash within the firm. It is because the delayed payment collection may affect the cash position of the firm that may influence its routine operations.
ii. Identify & explain reasons for previous profits and losses
Based on internal analysis and PEST, it can be stated that sales growth may be possible due to effective sales and marketing efforts of Houzit. Apart from this, better capacity of the company in terms of cost reduction through introduction of advanced technologies may also help the firm to keep operational cost low and enhance profitability.
Favourable political policies and increasing disposable income of people may also help to increase the demand of the products of the firm and contribute to its sales and profits growth. In addition, the focus of the firm on customer satisfaction and innovation in the products may also raise the demand of the products of company that may contribute to sales and profits of the firm.
iii. Critical dates and initiatives
- 31-12-2011 – Amount of $100,000 paid for loan
- 2011-2012 – Increase in advertisement budget by $70,000
- 2011-2012- Increase in wages and salaries by $172,500
- Cash flow effect of the GST payable per quarter to be prepared (scheduled compliance payment date is the 21st day after the end of the quarter)
iv. All financial bids, estimates, assumptions and basis
- Luxury car tax rate at 33% based on sales ratio Insurance, repairs and maintenance, Rent – apportioned equally in each quarter.
- Store supplies, cleaning, Telephone and Electricity, Wages and salaries using the same % as determined by the sales for each quarter.
- Cost of goods sold is the inverse of the gross profit rate
- Accounting fees, interest charges, bank charges paid equally in each quarter.
- Sales growth 8% annually
- % Debtors of total sales: 20%
- Sales in quarters 2011/12 in the same % as sales 2010/11
- GST collected at 10% of sales
- GST paid at 10% of particular expenses
- Depreciation same as 2011 and allocated equally in each quarter.
- Advertising is to be apportioned to each quarter based on the business plan.
- Inflation rate 4% affecting expenses
- Same fringe benefits tax as 2011 and paid equally each quarter.
- The statutory requirements are:
- Superannuation: 9% of wages and salaries for each quarter
- Payroll tax: 4.75% of wages and salaries for each quarter
- Workers compensation: 2% of wages and salaries for each quarter
- Tax rate 30%
v. Implementation and monitoring of budget expenditure
Proper meetings and time to time update are significant to monitor the budget expenditures while dealing with sensitive information. Comparison between actual and forecasted budget is also significant to monitor budget expenditure.
vi. Current statutory requirements and the tax liabilities
For tax compliance, the current statutory requirements incorporate superannuation at 9%, worker compensation at2% and payroll tax at4.75% of wages and salaries for each quarter. In addition, tax rate is 30% of net profit after tax. For complying tax related statutory requirements, it is required to prepare three monthly rolling forecast of cash flows. The calculation of the tax liabilities for Houzit Pty Ltd is as follows:
|Net Profit (Before Tax)||$1456427||$10672||$353420||$449794||$642542|
|Income Tax (30%)||$436928||$3201||$106026||$134938||$192763|
vii. Financial management software
The current financial management software system does not provide sufficient analysis of revenue and expenditure. This makes it difficult for making informed estimates of future profits. For this, the following software can be used by the firm:
| ||Freshbooks||QuickBooks Online|
|Users ||Small business owners||Small as well as large businesses|
|Client experience ||99%||94%|
|Pricing type ||Monthly /annually||Monthly|
Accounting Reports & Taxes
|Basic features + additional features on tailored pricing|
|OS Supported||All OS supported||All OS supported|
|Available Support||Support through phone and live and training||Support through phone and live|
|Free trial ||No||30-day free trial|
|Language ||USA||Different countries|
(Source: Comparisons.financeonline.com, 2017)
QuickBooks Online can be recommended due to its cost effectiveness, availability in different languages and requirement of only basic features plus additional features based on tailored pricing.
viii. Effectiveness of the organisation’s existing financial management approaches
The existing financial management approaches are not effective due to inability to provide adequate financial information that lead to wrong decisions. Company is also based on the ‘gut feel’ of the experienced traders on the board and of the senior managers to estimate the financial performance. Although, these approaches focus on the business activity statement (BAS) schedule regualted by the Australian Tax Office. In addition, it also considers security measures to store financial data.
ix. Items for inclusion in the budgets
- Store supplies
- Office expense
- Luxury car tax
- Water bills
x. Internal controls
- Authentication by the line manager
- Signed or linked Service invoices for equipments to a purchase order
- Checking process
- Fix unique codes to assets
- Feedback lines of communication
- Monthly Debtor reconciliations
- Allocation and segregation of duties
Knowledge Test questions
Principles of accounting and financial systems
Matching principle needs to be adopted in budget preparation due to matching revenues respective to expenses during a financial year. Time periods principle is related to budget formation on monthly, quarterly and annual basis. Quarterly accounting is useful for internal stakeholders while annual accounting basis is crucial for the external stakeholders.
Requirements for financial probity while managing finance
Probity is valuable to implement and monitor the budget expenditure. It is also required to check ethical point of views regarding implementation and monitoring of budget expenditure.
Explain Australian, international and local legislation and conventions that are relevant to financial management in the organization
The Corporations Act 2001 is relevant to financial management of the company because it prepares disclosure reports, asset valuation and financial report.
It complies with requirement of preparing general ledger for business transactions, cash records including bank statements, sales and purchase records, inventory records, goods and returns tax, superannuation records, payroll tax and tax returns with calculations. Current liability, fringe benefits tax for non-cash benefits and income tax are levied on earnings which need to paid by the company.
- Goods and Services Tax:
- Company Tax:
To qualify for the lower 27.5% tax rate in 2016–17, there is need to accomplish following requirements:
- Aggregated turnover of less than $10 million
- Carry on a business.
- Pay As You Go:
- Employ people
- Employ other workers such as contractors with a voluntary agreement
- Payments to businesses that do not quote their ABN
Australian Government (2018) [Online] Available at: https://www.business.gov.au/info/run/tax/register-for-pay-as-you-go-payg-withholding (Accessed 23 March 2018)
Comparisons.financeonline.com (2017) [Online] Available at: https://comparisons.financesonline.com/freshbooks-vs-quickbooks-online (Accessed 23 March 2018)
Crosson, S. V., & Needles, B. E. (2013) Managerial accounting. Cengage Learning.
Davies, T., & Crawford, I. (2011) Business accounting and finance. Pearson.
DRURY, C. M. (2013) Management and cost accounting. Springer.
Ward, K. (2012) Strategic management accounting. Routled