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BSBFIM501 Financial Management

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  • Course Code: BSBFIM501
  • University: Victoria University
  • Country: Australia

Question:

Task 1: Financial management

Organisations are all different in terms of the products and/or services they provide, the competitive environment they operate within and the scale of operations. As a result their structure and resource requirements may also be different. A sound Financial Management and compliance process however is crucial in maintaining control and effectiveness of any organisation.

Required:

In the context of the above statement please answer the following questions.

Create your WORD document (or something similar) to answer this task. This document can be used for all required tasks in the assessment as indicated.

Part A

Outline the three (3) major commercial organisation types. Explain briefly the advantages and disadvantages associated with each one.

Part B

What are Key Performance Indicators (KPIs)? Why is it important to establish Objectives and KPIs at the start of the Financial Management Process? Provide three (3) examples of both Financial & Non-Financial KPIs. For each KPI what is being measured?

Part C

Assume you are managing a project involving the implementation of a new computer system. You have received a brief from Senior Management and created your project team and drafted a plan relating to the project. You will need to work closely with team members and stakeholders and you have had several meetings and attended presentations with the Finance Division to gain a full understanding of their policy and processes.

What do you consider to be the key attributes of a sound Financial Management Process to ensure the key objectives and KPIs of this project and the organisation are met (Refer to the Financial Management cycle) 

Part D

An effective Financial Management Process is dependent on a number of factors. Crucial is the establishment of a sound system of Internal Control to minimise risk and maximise effectiveness.

Outline your understanding of Internal Control and why it is important to have a system in place as part of the Financial Management process. What are the key areas that need to be considered when implementing internal controls? Give an example of three (3) key controls that will assist in achieving these objectives – Guide: 200 words in length.

Task 2: Basic spreadsheets for budgeting

You are required to use the template provided for this task.

Part A Creation, formatting and formulas for the spreadsheet

You are required to:

Replicate the spreadsheet below by implementing the following:

  1. Change the name of the worksheet to "Create Spreadsheets".
  2. Centre the title across width of the table.
  3. Fill the range of cells from Jul 14 to Dec 14 for units and revenue with a colour of your choice.
  4. Ensure the width of each column is such that the text and figures are presentable.
  5. Include the appropriate formats for numbers, dollars, dates and font size.
  6. Use the SUM formula to arrive at 'Total' Quantity and 'Total' Revenue.
  7. Calculate ‘Revenue’ being the quantity multiplied by the Price Per Unit. Use Absolute Values in your calculation.

Part B: Linking spreadsheets

Task 2 – Part B requires you to create three spreadsheets on the template provided. The spreadsheets will be for Slater Stationery for Quarter 1, Quarter 2 and then the Total of the 2 Quarters.

You are required to:

Replicate the spreadsheet below by implementing the following:

  1. Centre the title of the spreadsheet across the width of the table.
  2. Fill the range of cells relating to the column headings and total first quarter with a colour of your choice.
  3. Ensure the width of each column is such that the text and figures are presentable. Where appropriate implement “Wrapping of text” for each heading.
  4. Include the appropriate formats for numbers, dollars, dates and font size.
  5. Calculate ‘Employee Total’ using the SUM function for Jan, Feb and Mar.
  6. Calculate the % of Total Sales column be that is the employee total as a % of the Total Sales. Use the Absolute Value function in your calculation.
  7. Calculate the Commission Earned that is the Employee total multiplied by the ‘Current Commission Rate’. Use the Absolute Value function in your calculation.

Part B – 2nd Quarter

You are required to:

Replicate the spreadsheet below by implementing the following -

  1. Centre the title across the width of the table.
  2. Fill the range of cells relating to the column headings and total second quarter with a colour of your choice.
  3. Ensure the width of each column is such that the text and figures are presentable. Where appropriate implement “Wrapping of text” for each heading.
  4. Include the appropriate formats for numbers, dollars, dates and font size.
  5. Calculate ‘Employee Total’ using the SUM function for Apr, May and Jun.
  6. Calculate the % of Total Sales column that is the Employee total as a % of the Total Sales. Use the Absolute Value function in your calculation.
  7. Calculate the Commission Earned that is the Employee total multiplied by the ‘Current Commission Rate’. Use the Absolute Value function in your calculation.

Part B – Summary

You are required to:

Replicate the spreadsheet below and incorporate the following:

  1. Centre the title across the width of the table.
  2. Fill the range of cells relating to the column headings and total second quarter with a colour of your choice.
  3. Ensure the width of each column is such that the text and figures are presentable. Where appropriate implement “Wrapping of text” for each heading.
  4. Include the appropriate formats for numbers, dollars, dates and font size.
  5. Use the Linking function to arrive at the amount for “Employee Total Sales” and Commission Earned from the previous two worksheets created.

Task 3 – Accounting concepts

Part A – Terminology

From the following list of terms select the one that best answers the question below - Use Excel template titled ‘Task 3’.

  1. Journal
  2. Tax Invoice
  3. Trial Balance
  4. The Accounting Equation
  5. Non-Current Assets
  6. Shareholder’s funds
  7. Liability
  8. Company
  9. Chart of Accounts
  10. Source Document
  11. Petty Cash
  12. Debit
  13. Credit
  14. Double Entry Bookkeeping
  15. Accounts Receivable Ledger
  16. Goods & Services Tax (GST)
  17. General Ledger

Part B – Taxation and record keeping

  1. The Goods & Services Tax (GST) is a tax levied and administered by the Australian Taxation Office (ATO). Explain this tax in terms of what it applies to and how it is imposed. 
  2. Briefly explain three (3) other forms of taxation imposed by the Australian Taxation Office (ATO).
  1. Provide a broad overview of the record keeping requirements of a business from both an internal and external compliance perspective as imposed by the Australian Taxation Office (ATO).

Task 4 – Financial statements

The management of a client company would like to understand how they have performed for the month in terms of Net Profit, Gross Profit from trading and Revenue as Key Performance Indicators (KPIs). Of interest also is their Financial Position as at that date. You have produced and printed off a Trial Balance for the month ended 30 June 20x3.

Part A

In the capacity of a Finance Consultant for the Ajax Building Company you have been asked to prepare an Income Statement (Profit and Loss Statement) and Balance Sheet for the business for the month ended 30 June 20x3. Use the Excel worksheet titled ‘Task 4 Part A’.

Part B

Prepare a short report to Management outlining the results of the company in terms of Financial Key Performance indicators (KPIs) being reported i.e. Provide a brief summary of the Net Profit Performance and the company’s financial position (from the Balance Sheet) as at 30 June 20x3. Is the company in a positive position and if so why?

Task 5 – Financial Statements – Cash Flow Statement

The Directors of Ajax Building Company Pty Ltd were satisfied with your report on their Profitability for the period ended 30 June 20x3. The Bank account however has gone from a positive balance of $40,000 at the start of the period to a negative position thereby requiring a bank overdraft of $50,000 * i.e. $90,000 turnaround in 12 months.

A follow up meeting has been organised where a more detailed explanation will be provided in relation to the business’ cash flow position.

In preparation for the meeting you consulted with the accounting staff to ensure that all cash transactions for the period have been brought to account in the General Ledger. The following are two reports supplied to you:

  1. An extract from the General Ledger Account showing all cash transactions being opening balance plus receipts less payments = Closing Balance.
  1. An Ageing Summary showing the summary of Accounts Receivable as at 30 June 20x3 and the length of time outstanding. This Balance has been arrived at after starting with the opening balance at the start of the year plus sales invoices billed less cash received from customers.

Required:

Part A

From the General ledger Account prepare a Statement of Cash Flow showing Cash flow from Operations, Investing and Financing for the 12 month period ended 30 June 20x3 Use the worksheet on the bottom tab in the Excel Template titled ‘Task 5’.

Part B

From the Statement of Cash Flow draft a brief report outlining the possible reasons why the company has generated a profit however the cash position has deteriorated by $90,000.  As part of your answer refer to the Ageing summary and advise what possible action should be taken.

Task 6 – Introduction to Budgets

Bill made the decision to open his own business five years ago. He had been working in the importation and wholesaling of furniture for some time and had developed skills in all facets of the business. He now has a company BJ Wholesale Company with many clients. His prime activities include the warehousing and wholesaling of three products being stools, coffee tables and buffets. He employs forty people including Managers in Sales and Marketing, Ordering, Warehousing, Distribution and Administration.

Whilst he has a good technical background and experience in the business there appears to be issues with planning and budgeting.  The managers and the staff only have a broad understanding of the reporting structure and accountabilities. This is largely due to a lack of a documented organisation chart which clearly shows the lines of authority, responsibility and work groups. In addition the cost centres and sales groups for each product are not clearly identified.

Further analysis show that managers only have a broad understanding of the Key Performance indicators and the absence of a current year forecast and sales plan is making it difficult for other departments to plan their requirements and expenses. Bill being easy going in nature simply allows managers to spend on discretionary expenditure as they progress through the year.

He receives a report from his Accountant on the financial performance for the month and year to date and reports each quarter to the managers on Sales and Profit only.

Over the past two years profitability has fallen and he doesn’t understand why. He is unable to establish what areas of the business are impacted and what managers are responsible. He has also noticed that there is a lack of coordination and cooperation between departments. Communication is poor and there is a high turnover of staff due to poor morale. In addition suppliers are not getting paid on time and customer satisfaction has fallen.

Bill understands his Operational and Master Reports being the Profit and Loss and Balance Sheet. The Cash Flow report is prepared by the Accountant. He does acknowledge however there is a problem with financial management throughout the business.

Required:

  1. In the capacity of consultant you have been asked by Bill to provide advice on the deficiencies that exist with the Company’s Financial Management Process. This includes the lack of a budgeting and reporting structure which would provide a greater level of control. Your report should include an explanation of budgeting and why it is an important planning tool.

  2. It is currently September 20x3 and Bill would like to understand the process to facilitate the creation of these budgets for the next calendar year being 20x4. This includes the creation of KPIs, current year forecast through to the final approval of the budget before the start of the forthcoming year. You may use bullet point format with a brief explanation.

  3. Provide Bill with advice on the need for an effective structure, guidelines and management responsibility in setting the budget. How are the various parts of the budget such as sales and expenses justified, negotiated and then communicated through the relevant teams?

  4. From the structure of the company explain how the activities of one department may impact on another and the implications for budget setting.
 

Answer:

Part A

The three major types of commercial outlines has been described here-in-below:

  • Company: The Company is a separate legal entity distinct from its owner. There are generally two types of company i.e. Private limited and public limited. Under, this structure the owners have a limited liability up until the face value of shares in case of shares is partly paid. The other advantages includes large pooling of resources and numerous shareholders. The major disadvantage of this structure is that only few players control the game, the stake of minority is at risk etc.
  • Limited Liability Partnership: The limited liability partnership is formed when two or more people having at least one general partner and at least one limited partner come together. The pros are limited liability, easy to form and perpetual existence while the cons are restriction on transfer of interest, sharing of profit with other etc.
  • Sole proprietorship: The sole proprietor is also known as independent consultant, contractor or a freelancer owned by a single person. It is one of the most common type of business organisation. The pros of the said structure encompass simplicity, full control, easy to form, less expensive etc while the con include unlimited liability, limited resource etc. (Law Teacher, 2018)

PART B

A KPI or Knowledge Performance Indicator is a measurable value that demonstrates how effectively a company is able to achieve its key business objectives. Under a normal parlance, companies establish KPI at multiple stages for the purpose of evaluation success at different stages.

It is important to establish KPI and business objectives at the initiation of Financial Management process in order to provide direction and a sense of responsibility among the employees of organisation. Further, it is important to establish goals in order to be in alignment with vision and goals of the company along with meeting the competition. In addition, it helps to evaluate department and employees performance. Further, it helps to align business activities and individual actions with strategic objectives.

The three Financial and non-financial KPI has been detailed here-in-below along with what is being measured.

Financial KPI

Revenue Target: Measure the amount of revenue to be generated in a specified period;

Profit Target: Measure the amount of profit to be generated in a specified period;

Expense Target: Measure the amount of expense that can be incurred during a specified period.

Non-Financial KPI

 Customer Relationship: No of customer acquired or retained;

Employees: No of employees joined and left the organisation or employee satisfaction; (CGMA, 2013)

 

Quality: Quality of work environment or product

Part C

The key standard or attributes of a sound financial management system has been detailed here-in-below:

  • It must be relevant and critical for a stable, robust and well-functioning financial system so that a sense of polarisation can be imparted on implementation;
  • It should be universal in applicability;
  • The financial management system shall be flexible in nature and shall take into account a wide range of factors; (Pal, n.d.)

Part D

Internal control as defined in accounting and auditing shall be defined as process which helps to assures organization's objectives along with operational effectiveness and efficiency, a framework of reliable financial reporting, compliance with relevant laws, regulations and policies. In simple words it shall encompass everything which is used to control risks to an organization.

The key areas that needs to be considered include control environment, risk assessment etc.

Part 3

Part B

  1. The Goods and Service tax is a tax, which is levied on goods and services which is sold internally within the domestic territory of the country.

Goods and service tax is collected at each point of producing different goods and services.

2.The other forms of taxation are as follows:

  • Superannuation taxes
  • Corporate taxes
  • Excise tax

All the business is Australia is required to keep and maintain records about the operation of business regarding how much profit the business earn, from which place the business is operated, name of the person the company hire, how things are managed inside the company.

Task 4

Part B:

The company financial position overall is good and the company has a good profit  position  and as the company is in good profit position due to its high credit sales .The sales to the customer is credit in nature. Due to credit sales the company overall profit stands at good position and the net profit is positive due to credit sales.

Task 5

Part B:

The company has generated a profit however; the cash position has deteriorated by $90,000 due to high credit sales to its customers and low cash sales to the company customer. The balance standing in accounts receivable amounted to $1, 60,000 also indicates that the company has a high credit sales. Excess payment and less receipt also lead to negative cash balance in hand,

Task 6

  1. Budgeting is a layout and framework of the company how the money is to be spend, this spending plan help us to determine whether there is a sufficient money in hand  to do things what is wanted to be done.

Budget is a very important tool because it will ensure that the company will have enough money in hand for the things to be done and the company will never fall in a scarce position .This will also ensure that the company always remain debt free and if the company is in debt situation, it shows the way how to come out from it. (myMoneyCoach, 2018)

B.The various points, which need to be considered before creation and formulation of budget, are as follows:

  • To gather data and define plans for it.
  • To form an expectations and to reconcile the same with goals and data
  • To create a budget
  • To analyse the variance by comparing with the actual output.
  • To adjust the budget.
  • To redefine the goals set.

C.The various parts of the budget such as sales, expenses are justified based on past year figure and demand of that product in the market in the present situation.

D.The department activities can affect another depart due to very poor communication gap between each of them and the rate of turnover of the staff becomes high. Lack of proper co ordination by one department and lack of communication will lead to lack of information available to another department this can lead to poor sales, low profitability and fall in customer demand.

 

References

CGMA, 2013. KPIs – financial and non-financial. [Online] Available at: https://www.cgma.org/resources/tools/essential-tools/kpis.html [Accessed 21 Jan 2019].

Law Teacher, 2018. Six types of business organizations. [Online] Available at: https://www.lawteacher.net/free-law-essays/business-law/six-types-of-business-organizations-business-law-essay.php[Accessed 21 Jan 2019].

myMoneyCoach, 2018. What is Budgeting? What is a Budget?. [Online] Available at: https://www.mymoneycoach.ca/budgeting/what-is-a-budget-planning-forecasting[Accessed 21 Jan 2019].

Pal, D. K., n.d. Management Concepts and Organizational Behaviour. [Online] Available at: https://www.ddegjust.ac.in/studymaterial/mcom/mc-101.pdf
[Accessed 21 Jan 2019].

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