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In this task you are required to

  • Respond to a range of questions that examine your understanding of key legislative and financial management requirements for a case study organisation.
  • Review available financial information and establish a budget for the organisation.

This assessment requires you to

  • Determine the requirements to undertake budgeting, financial forecasting and reporting requirements for an organisation.
  • Review the case study provided and prepare a budget (in electronic spreadsheet format) and
  • Budget notes for distribution and implementation in the organisation.
  • Research on other topics in relation to prepare budget:
  • Implications of Financial probity
  • Implications of principles of accounting

Identification of reasons for previous profit or loss

SALES and PROFIT BUDGET

2017/18

Qtr 1

Qtr 2

Qtr 3

Qtr 4

Revenue

100%

20%

24%

26%

30%

Sales

$16,971,236

$3,394,248

$4,073,097

$4,412,521

$5,091,370

– Cost of Goods Sold

$9,673,604

$1,934,721

$2,321,665

$2,515,137

$2,902,081

Gross Profit

$7,297,632

$1,459,527

$1,751,432

$1,897,384

$2,189,289

Gross Profit %

43%

43%

43%

43%

43%

Expenses

– 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

$170,000

$42,500

$42,500

$42,500

$42,500

– Insurance

$13,390

$3,348

$3,348

$3,348

$3,348

– Store Supplies

$3,749

$937

$937

$937

$937

– Advertising

$350,000

$200,000

$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

$2,640,508

$660,127

$660,127

$660,127

$660,127

– 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

$12,000

$12,000

$0

$0

$0

– Fringe Benefits Tax

$28,000

$7,000

$7,000

$7,000

$7,000

– Superannuation

$187,020

$37,404

$44,885

$48,625

$56,106

– Wages & Salaries

$2,078,000

$415,600

$498,720

$540,280

$623,400

– 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

$5,841,371

$1,458,676

$1,395,209

$1,444,476

$1,543,010

Net Profit (Before Tax)

$1,456,261

$851

$356,222

$452,908

$646,280

Income Tax

$436,878

$255

$106,867

$135,872

$193,884

Net Profit

$1,019,383

$596

$249,356

$317,036

$452,396

CASH FLOW ANALYSIS – GST

2017/18

Qtr 1

Qtr 2

Qtr 3

Qtr 4

GST Collected

$1,697,124

$339,425

$407,310

$441,252

$509,137

Less GST Paid

$1,281,358

$256,272

$307,526

$333,153

$12,480

GST Payable

$415,765

$83,153

$99,784

$108,099

$496,657

AGED DEBTORS BUDGET

TOTAL

Qtr 1

Qtr 2

Qtr 3

Qtr 4

Sales

16971236

3394247.63

4073096.73

4412521.274

5091370.368

% Debtors Sales

20%

20%

20%

20%

Total Debtors

100%

$678,849

$814,619

$882,504

$1,018,274

Current

84.00%

$570,233

$684,280

$741,303

$855,350

30 Days

10%

$67,885

$81,462

$88,250

$101,827

60 Days

5%

$33,942

$40,731

$44,125

$50,914

90 Days

1%

$6,788

$8,146

$8,825

$10,183

I. Identification of reasons for previous profit or loss

The budget of Houzit Pty Ltd is prepared for the year 2011-12. For the preparation of the budget last four years financial statement are analysed. By analysing the financial statement of the previous yearthe explanation for the profit or loss of the previous is obtained. The net profit of the company is in the uptrend as the income statement is reflecting such. Due to stable sales growth rate of 8% the net profit is increased. As the increase in expenditure is less that the increase in Gross profit margin, the increase in the expenditure has not affected the company so it has contributed to the profits for the year.

It can be said that the constant growth of sales by 8% and the increased rate of gross profits is contributing to the operating profits because of the growth in gross profit is higher than the increased in expenditure.

II. The comment on effectiveness of the existing financial management approach

Effective an efficient management of the business operation are the prime objective of every organisation. This can be achieved by financial management. The senior level of the management perform as an expert function. Large portion of the funds are blocked outside the organization observed by the current financial management. The main objective of developing the business plan is to manage the debtors effectively in the context of the business plan summary. the upcoming year is expected to rough for the company as analysed by the economic experts. In order to make the financial management more effective the company should efficiently manage the debtors in the effected period and evaluation to smoothen the cash collection and reducing the working capital requirements. Based on the current analysis it can be said that the financial managers must view and manage the debtors more effectively.

III. Assumptions made for preparing the budget

For the future periodan estimate financial performance of the company is prepared which is called budget. After considering the necessary assumptions the estimates are made. The assumption are as discussed here under.

  • It is assumed that the company is able to earn similar growth rate will be maintained in the future;
  • It Is assumed that the inflation rate for expenditures to be 4%;
  • It is assumed that the business will be able to preserve the sales growth rate by providing increased after sales service;
  • The gross profit rate of the company is reduced by 1% with the assumption that it will help the company to maintain the same growth rate;
  • It is assumed that expenditures that will be incurred consistently in different quarters;
  • It is assumed that certain expenditure will be incurred in accordance with the sales of each quarter.
  • IV. Monitoringand implementation of budget expenditures

It is the crucial step that determines the effectiveness of the budget process are implementation and monitoring procedures. The distribution of the budgets are held for different cost centres in an efficient manner. To condemn any discrepancies with the budgeted expenditures the actual expenditure should be tracked consistently, as this will help in the assertion of the management to control the cost.so that the management is able to make remedial action to stop the over budgeting.

Question 1

Goods and service tax is a broad-based tax which is taxable on the consumption goods, items or services in Australia. The GST tax rate is 10% on most goods in the country. GST credits can be claimed on reporting and paying the GST on a regular basis.

Payroll Tax is implemented upon the wages or salary paid to a worker or an employee. The wages or salary is only deductable when it exceeds the particular amount. It is a self assessed, general purpose tax which is collected by the taxation department of the state and the territory.

Effectiveness of the existing financial management approach

Fringe Benefits Tax is payable by the employers. This tax signifies the benefits that are being paid to the employees. This tax includes all the expenses which is not included in the salary but still being enjoyed by the employee. This tax is separate to income tax.

PAYG withholding is the total amount of payment which the employer pays to its employees or workers. This is done in order to show the liability of the payees at the year ending.

The Corporation Act 2001 is a legislation made and amended for the commonwealth of Australia. This act implements and regulates the companies and entities like sole trader or partnership structured business of Australia. This act is the base model of the Australian Corporations Law.

Question 2

            Among the financial software available in Australia, MYOB and QuickBooks are two of the best software widely used by the small and big entities of the country. The simple user interface and the cheap price make this accounting software more attracting to the users. The additional security and the updated accounting information make the accounting job easy to analyze.

Principles of Accounting is based upon the guideline of GAAP or the Generally Accepted Accounting Principles. It is used as a standard method of accounting and is acceptable by various countries. This particular principle contains ten sub principles which should be maintained in order to implementation of the principle. These are: economic entity assumption, monetary unit assumption, time period assumption, cost principle, full disclosure principle, going concern principle, matching principle, revenue recognition principle, materiality and conservatism.

Probity means to maintain proper honesty, integrity and priority while stating the financial status of any company. It is expected that the accounting team will show the mentioned perspective while preparing the financial statements of any company. So the budget making process should follow the all the requirements stated in probity which means the current financial state of the company should be analysed, the issues of the companies regarding its operation should be found and the upcoming actions regarding the operation of the company should be stated in an elaborate way.

Part 2 

Answer 1

            According to the Income Tax Assessment Act 1997, the company is bound to pay taxes based on the various provision stated on this legislation. The calculation of payable taxes needs to be done in an elaborate way to avoid any other additional penalties. The company has to pay income tax whenever it purchases any new assets. The payable income tax is calculated upon the 30% of the company’s profit. The GST is payable by the company upon the payments that are made to the suppliers (Renz, 2016). The amount of income tax for the company works as an indicator of incomes and the deductions of the company. The final calculation of payable income tax for the company is being prepared after producing several other reports like GST, annual returns and others.

Answer 2

            If the company has to register any new assets or property in the business, it has to follow the rules and regulations which is stated in the Corporation Act 2001. According to the act, the company must obtain a resident director in order to register any new assets. The permanent address of the office of the organisation should also be enlisted in the registration form. Other requirements for registering new assets of the company under the Corporation Act is to provide the records of the financial statements of the company and the recent changes that has been occurred in the management team of the company which is not yet recorded in the financial statement. The company should report all this necessary data to the higher authority in order to get a valid registration on their assets.

Assumptions made for preparing the budget

 Answer 3

            In Australia, several software is being used by several companies to maintain the accounting and finance of the company. These software are selected regarding the demands of the company and the usability and simplicity of the applications. The price of the software can also be a major factor for many companies. Among the accounting software that are available in the market, MYOB and Quick Book are two of the most popular accounting software that are widely used by the companies in Australia for accounting purpose.

Both of these software cost low in price and the usability and simplicity of these are up to the market standard. The security and encryption level of Quick Book can be related with the security structure of a bank. But MYOB can also offer the critical data analysis out of the financial condition of the firm which helps the company to find any issue regarding its business and fix it as soon as possible. The software also works perfectly both in online and offline mode. Both of these softwares can provide regular updates for the recent development taxes as both of them are complied with ATO.

Answer 4

            The matching principle is used to match the expenses and the revenue regarding it after a certain interval of time. The guideline of this principle is widely used to monitor the expenses of the company and whether is the expenses has been surpassed the revenue gained from it or not. It is very important to follow the matching principle as it can be very helpful at the time of preparing budget for forecasting the upcoming expenses. To simplify the procedure of making budget, certain accounting groups are being created and organised in a particular sequence so that the data revealed in the statement can be utilised properly and the usefulness of the budget can be increased. To help to figure out the actual financial condition of any company and to help making the final budget, several other short term budgets can also be created.

Answer 5

            The term probity means to prepare the budget with proper honesty, integrity and priority. For preparing a budget of any company, the management team should be totally devoted with the work as the budget will work as a reference for the upcoming operations of the company. So the budget making process should follow the all the requirements stated in probity which means the current financial state of the company should be analysed, the issues of the companies regarding its operation should be found and the upcoming actions regarding the operation of the company should be stated in an elaborate way (Obaidullah, 2017).

Thus the probity ensures that the budget is made with a dignified manner and attention that it deserves. Following proper probity means to lessen the chances of making any error or intentional mistakes or to exaggerate or surpass any important financial data of the company. This also ensures that the analysis of the current financial condition and forecasting the upcoming operating is done correctly and sincerely.

Answer 6

            According to the budget of Houzit Pvt Ltd, the company should reduce the rate of gross profit but 1% in order to keep up the growth in a steady way. The company should also increase the advertisement budget by 70% to gain more markets and clients for getting more profits in the upcoming year. The amount of salary and wages distributed to the employees and workers should also be increased to maintain the satisfaction and the motivation of the employees in the work so that the production of the company can also be improved. The incentives of the employees can also be increased in order to motivate them to increases their production level.

Answer 7

Apart from the items that are listed in the budget, there are few other recommendation which can be considered for the budget for further improvements. These recommendations are also useful in case of any financial emergency faced by the company and to manage its expenses in accordance with the needs of the company. A company should always maintain its financial viability to its operation to make stable growth. The additional recommendations are:-

  • The loans should be paid in time to reduce the amount of extra interest charges paid by the company.
  • The distribution system of wages of the company should be improved and more systematic in order to avoid any dishonesty in terms of payment made by the senior employees.
  • The discounts given by the company should be reduced for the long term interests.

            The risk management of any company is very important in order to compensate any unexpected loss regarding the operations of the company. Every business operation involves some kind of risks. Thus it is very important to establish a risk management team and short out some plans regarding managing the risks that can evolve during the operations of the company. Some of the suggestions regarding the risk management of Houzit Pvt Ltd are:-

  • The customer base of the company should be secured in order to keep a track to the demand and probable growth in the user base of the company.
  • The discounts which are given to the clients should be registered in the invoice bill so that the total rebate given can be monitored.
  • The cash balance should also be verified along with the registered cash.
  • The total amount of overtime done by employees and workers should always be authorized by the service manager.
  • The workers should always be paid when the work is completely done and thus the invoice for the wage and salary should always be signed by them in order to avoid the unnecessary expenditure.
  • The assets of the company should be indicated with a unique code in order to monitor over the assets.
  • It is important to track who are currently working at the company and who had left to track the clarity of the wages system.
  • The debtors’ balance should be updated every month.
  • The reconciliation of the cash balance should be done by individuals so that the report cannot be biased.
  • Task 2

Houzit Pty Ltd

Variance to Budget

1 Quarter ended September-2017

Actual Results

Budget-Qx

Actual-Qx

$

% Variance

F or U

Variance

Sales

$3,394,247.63

$3,371,200.00

-$23,047.63

-1%

U

– Cost Of Goods Sold

$1,934,721.05

$1,955,296.00

-$20,574.95

-1%

U

Gross Profit

$1,459,526.59

$1,415,904.00

-$43,622.59

-3%

U

Gross Profit %

43%

42%

-1%

-2%

U

Expenses

– Accounting Fees

$2,500.00

$2,500.00

$0.00

0%

F

– Interest Expense

$21,127.00

$28,150.00

-$7,023.00

-33%

U

– Bank Charges

$400.00

$380.00

$20.00

5%

F

– Depreciation

$42,500.00

$42,500.00

$0.00

0%

F

– Insurance

$3,347.50

$3,348.00

-$0.50

0%

F

– Store Supplies

$937.25

$790.00

$147.25

16%

U

– Advertising

$200,000.00

$150,000.00

$50,000.00

25%

F

– Cleaning

$3,256.45

$3,325.00

-$68.55

-2%

U

– Repairs & Maintenance

$16,068.00

$16,150.00

-$82.00

-1%

U

– Rent

$660,127.00

$660,127.00

$0.00

0%

F

– Telephone

$2,999.36

$3,100.00

-$100.64

-3%

U

– Electricity Expense

$5,356.00

$5,245.00

$111.00

2%

F

– Luxury Car Tax

$12,000.00

$12,000.00

$0.00

0%

U

– Fringe Benefits Tax

$7,000.00

$7,000.00

$0.00

0%

F

– Superannuation

$37,404.00

$37,404.00

$0.00

0%

F

– Wages & Salaries

$415,600.05

$410,500.00

$5,100.05

1%

F

– Payroll Tax

$19,741.00

$19,741.00

$0.00

0%

F

– Workers’ Compensation

$8,312.00

$8,312.00

$0.00

0%

F

Total Expenses

$1,458,675.62

$1,410,572.00

$48,103.62

3%

F

Net Profit (Before Tax)

$850.97

$5,333.00

$4,482.03

527%

U

Income Tax

$255.29

$1,600.00

-$1,344.71

-527%

F

Net Profit

$595.68

$3,733.00

$3,137.32

527%

U

Particulars

2015/16

2016/17

2017/16

Trade Debtors

850,000

975,000

1018274

Sales

14,550,100

15,714,108

16971236

Debtor Days

21

23

22

Budget Variance

            The terms budget variance is denotes the differences between the forecasted budget results with the actual financial report of the company. If the profits of the organisation or the operational targets of the company cannot meet the expected amount as stated in the budget, the amount can be figured out from this variance report. From the analysis of the variance report of the company, it can be seen that the actual gross profit was 3% less than the amount stated in the budget report (Kang& Mason, 2016). But the expenses stated in the budget report were 3% higher than the actual expenses stated in the financial report of the company. The variance in these two reports can be caused by various reasons, such as:-

  • If the total expanses increase and the total sales decrease in the actual report than the budget report then a variance can be observed in the net profit.
  • As the amount of sales cannot be controlled by the company, the management should have considered the probable ups and downs of the concurrent economy in order to avoid the variance.
  • There are other variances that differed from the budget report to the actual report. The gross profit declined by 1%.
  • The cost of goods sold increased by 2%.
  • The internet expenses increased by 33%.

Reference

Kang, D., & Mason, A. (Eds.). (2016). Macroprudential Regulation of International Finance: Managing Capital Flows and Exchange Rates. Edward Elgar Publishing.

Obaidullah, M. (2017). Managing Climate Change: The Role of Islamic Finance (No. 2017-1). The Islamic Research and Teaching Institute (IRTI).

Renz, D. O. (2016). The Jossey-Bass handbook of nonprofit leadership and management. John Wiley & Sons.

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My Assignment Help. 'Sales And Profit Budget, Cash Flow Analysis - GST, Aged Debtors Budget: Essay Preparation And Analysis.' (My Assignment Help, 2021) <https://myassignmenthelp.com/free-samples/bsbfim601-manage-finances/affected.html> accessed 19 July 2024.

My Assignment Help. Sales And Profit Budget, Cash Flow Analysis - GST, Aged Debtors Budget: Essay Preparation And Analysis. [Internet]. My Assignment Help. 2021 [cited 19 July 2024]. Available from: https://myassignmenthelp.com/free-samples/bsbfim601-manage-finances/affected.html.

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