BSBFIM601 MANAGE FINANCES

PREPARE BUDGETS

  
 Part 1
1 (a)
Sales budget 2019/20
Sales % 2019/20 Qtr 1 Qtr 2 Qtr 3 Qtr 4
Budget Total Budget 20% 24% 26% 30%
Total Sales 16,971,235 3,394,247 4,073,097 4,412,520 5,091,371

Bathroom fittings 30 5,091,370 1,018,274 1,221,929 1,323,756 1,527,411

Bedroom fittings 25 4,242,809 848,562 1,018,274 1,103,130 1,272,843
Mirrors 15 2,545,686 509,137 610,965 661,878 763,706
Decorative items 10 1,697,124 339,425 407,310 441,252 509,137
Lighting fixtures 20 3,394,246 678,849 814,619 882,504 1,018,274

Profit budget 2019/20

Profit Budget 2019/20 Qtr 1 Qtr 2 Qtr 3 Qtr 4
Revenue 20% 24% 26% 30%
Sales 16,971,235 3,394,247 4,073,097 4,412,520 5,091,371
Cost of goods sold 9,673,605 1,934,721 2,321,665 2,515,137 2,902,081
Gross Profit 7,297,630 1,459,526 1,751,432 1,897,383 2,189,290
Gross Profit % 43% 43% 43% 43%
Expenses
Accounting fees 10,000 2,500 2,500 2,500 2,500
Internet expense 84,508 21,127 21,127 21,127 21,127
Bank charges 1,600 400 400 400 400
Depreciaton 170,000 42,500 42,500 42,500 42,500
Insurance 13,392 3,348 3,348 3,348 3,348
Store supplies 3,750 750 900 975 1,125
Advertising 350,000 200,000 50,000 50,000 50,000
Cleaning 16,282 3,256 3,908 4,233 4,885
Repair and maintenance 64,272 16,068 16,068 16,068 16,068
Rent 2,640,508 660,127 660,127 660,127 660,127
Telephone 14,996 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 - - -
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 29,612
Workers' Compensation 41,560 8,312 9,974 10,806 12,468
Total Expenses 5,841,373 1,458,488 1,395,172 1,444,514 1,543,199
Net Profit (Before tax) 1,456,257 1,038 356,260 452,869 646,091
Income tax 436,878 311 106,878 135,861 193,828
Net Proft 1,019,379 727 249,382 317,008 452,263
GST Cashflow analysis
Cash flow analysis - GST 2019/20 Qtr 1 Qtr 2 Qtr 3 Qtr 4
GST collected 1,697,124 339,425 407,310 441,252 509,137
Less GST paid 1,281,359 282,913 306,854 326,325 365,267
GST payable 415,765 56,512 100,456 114,927 143,870

Aged Debtors Budget

Aged Debtors Budget Total Qtr 1 Qtr 2 Qtr 3 Qtr 4
Sales 16,971,235 3,394,247 4,073,097 4,412,520 5,091,371
% Debtors sales 20% 20% 20% 20%
Total Debtors 100% 678,849 814,619 882,504 1,018,274
Current 84% 570,234 684,280 741,304 855,350
30 Days 10% 67,885 81,462 88,250 101,827
60 Days 5% 33,942 40,731 44,125 50,914
90 Days % 6,788 8,146 8,825 10,183

1 (b)
Develop budget notes that include:
I. identification of reasons for previous profits and losses

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. Moreover, there are various changes identified in the profit
budget which includes the increase in the advertisement expenditure of the company by $70,000
and the introduction of royalty tax due to the purchase of the royal car. Also, there has been a
payment of $100,000 due to which expenses of the company has decreased.

II. your comment on the effectiveness of existing financial management approaches

The reason behind the non-effectiveness of financial management approaches includes
unavailability of adequate information, unnecessary expenditure, lack of market research,
Inadequate analysis of revenue/expense to produce an informed estimate, lack of computer
software to produce timely and detailed reports and too much reliance on qualitative input rather
than balancing it with quantitative data & analysis.

III. all assumptions and bases that have been made or used to form budgets
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. It
can be observed that with the increase in the sales the debtors of the company have also
increased with the proportionate amount and therefore there is a need to modify the current credit
policy of the company. The assumption for sales growth is same as in the previous year, inflation
is to be taken 4% per annum and also the expected gross profit is to be reduced by 1%.
iv. any relevant notes regarding implementation and monitoring of 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.
Following notes can be considered:
 Sales breakup – bathroom fittings 30%, bedroom fittings 25%, mirrors 15% and
decorative items 10%, lighting fixtures 20%.
 Increase the advertising budget by $70,000 over the 2018/19 – $200,000 is planned for
the first quarter with the balance apportioned equally over the following three quarters.
 Increase wages and salaries by $172,500 over the 2018/19 amounts.
 2019/20 target apportioned across the quarters in the same % as was achieved in
2018/179
 Accounting fees fixed amount of $10,000.
 Interest charges $84,508
 Depreciation is expected to be the same as in previous year and to be allocated in equal
amounts each quarter
 Part 2

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 
Good and services tax liability ($1,571,411 collected - 987,626 paid = $583,785)
Income tax $436,928
PAYG withholding tax payable $44,872

2. Identify the current compliance requirements and liabilities for this organization
under the Corporations Act 2001.

I. Proprietary limited and 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
II. 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.
III. An annual return with information about the company and its activities must be submitted
to the Australian Securities and Investment Commission.
IV. Keep sufficient financial records to explain reports and records must be kept for seven
years
V. Use company name and ACN on all public documents, business premises, cheques and
ASIC lodged documents
 3. 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 organization and against the prioritized 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 XERO Excel

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
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.
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
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.

4. Explain how you can apply the following principles of accounting in developing the
budgets required for this task: a. matching principle b. account groups c. time
periods.

Matching principle
The matching principle states that expenses should be recognized and recorded when those
expenses can be matched with the revenues those expenses helped to generate. In other words,
expenses shouldn’t be recorded when they are paid and expenses should be recorded as the
corresponding revenues are recorded matching the revenues and expenses in a period. To
illustrate the matching principle in context to this case let's assume that a company's sales are
made entirely through sales representatives who earn a 10% commission. The commissions are
to be paid on the 15th day of the month following the calendar month of the sales and if the
company has made $60,000 of sales in December, the company will pay commissions of $6,000
on January 15.
The matching principle requires that $6,000 of commissions expense be reported on the
December income statement along with the related December sales of $60,000. It also requires
that the December 31 balance sheet report a current liability of $6,000. This is referred to as an
accrual and is achieved through an adjusting entry dated December 31 that debits Commissions
Expense for $6,000 and credits Commissions Payable for $6,000. Moreover, without the
matching principle and the adjusting entry, the company might report the $6,000 of commissions
expense in January rather than in December when the expense and the liability were incurred.
Time periods
The time period principle is the concept that a business should report the financial results of its
activities over a standard time period, which is usually monthly, quarterly, or annually. Once the
duration of each reporting period is established using the guidelines of “Generally Accepted
Accounting Principles” or “International Financial Reporting Standards” to record transactions
within each period. With reference to case study context, the organization has December 31st as
their fiscal year-end and all activities for the business from January 1st to December 31st of the
next year in their financial statements. The company accountants will include the revenues and
all the expenses / costs incurred to earn the revenue for the twelve-month period.

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

5. 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
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.

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

I. Reduction on the principle of the loan of $ 100,000 on 31st December, 2019

II. Reduction in expected gross profit by 1% on the 2018/2019 results
III. Advertisement budged increased by $ 70,000 over 2018/2019 results
IV. Salaries and wages increased by $ 172,000 in 2019/2020

7. List the items you would recommend for inclusion in the budgets for Houzit Pty Ltd
The following are the recommendation for inclusions in budget sheets:
1.Pensions – The pension provided by the company to its employees will be recognized as a
major expenditure for employee benefits in the company
2. Healthcare – The healthcare facilities provided to the employees and staff of the company
needs to be included in the expense item of the company.
3. 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.
4. 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

8. List the new or modified internal controls that could improve risk management for
Houzit Pty Ltd including the maintenance of audit trails
The following are the modified internal controls that can improve risk management for the
organization:
 Risk management includes internal control additions and modifications:
 discounts to be recorded
 reconcile cash registers daily
  proper authorization – timesheets and supplier invoices
 maintain currency of asset register
 open lines of communication
 need for separation of duties
 job descriptions and roster duties to minimize fraud possibility.

Following Audit trail can be considered:

 List of directives – all cash received receipted on pre-numbered forms, payments via
cheques with stubs completed, voucher system in payments duly authorized, data entry to
identify source, cross coded source with electronic entry.
 Paperwork – paperwork with complete details must be provided as evidence of any
receipt or payment of cash.
 Secondary control – receipt of cash will have a secondary monitoring system like a cash
register or a second person. Verify with an independent record.
 Proper authority – all payments must be authorized by the person responsible for the
department or cost centre.