AMARJIT KAUR ID;- 1113154

Assessment Task 1
Prepare Budgets

Introduction

I am making a budget plan and am going to recommend financial managing

application for the business as a business manager. The company is named
Houzit Pty Ltd, it is a retailer for home wares. It is a growing business. It has 15
stores in Brisbane area. It has 150 staff members. It is registered with ASIC. As
per the review of financial structure of this company the report below has
been made.

PROFIT BUDGET

PROFIT BUDGET 2011/12 Qtr1 Qtr 2 Qtr 3 Qtr 4

Revenue 20% 24% 26% 30%

Sales 16,971,237 3,394,247 4,073,097 4,412,522 5,091,371

- Cost of goods 9,673,605 1,934,721 2,321,665 2,515,137 2,902,081

sold

Gross profit 7,297,632 1,459,526 1,751,526 1,897,384 2,18,290

Gross profit % 43% 43% 43% 43%

Expenses

- Accounting Fees 10,000 2,500 2,500 2,500 2,500

- Interest 84,508 21,127 21,127 21,127 21,127

Expense

- Bank charge 1,600 400 400 400 400

- Depreciation 170,000 42,500 42,500 42,500 42,500

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-Insurance 13,390 3,348 3,348 3,348 3,348

- Store supplies 3,749 750 900 975 1,125

- Advertising 350,000 200,000 50,000 50,000 50,000

- Cleaning 16,282 3,256 3,908 4,233 4,885

-Repairs & 64,272 16,068 16,068 16,068 16,068

Maintenance
- Rent 2,640,508 660,127 660,127 660,127 660,127

-Telephone 14,997 2,997 3,599 3,899 4,499

-Electricity 26,780 5,356 6,427 6,963 8,034

Expense

-Luxury Car Tax 12,000 12,000 - - -

-Fringe Benefit 28,000 7,000 7,000 7,000 7,000

Tax

-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’ 41,560 8,312 9,974 10,806 12,468

Compensation

Total Expenses 5,841,371 1,458,488 1,395,172 1,444,514 1,543,197

Net profit (Before 1,456,261 1,038 356,260 452,871 646,092

Tax)

Income Tax 436,878 311 106,878 135,861 193,828

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Net Profit 1,019,383 727 249,382 317,009 452,265

Sales Budget

SALES 2010/11 Qtr1 Qtr2 Qtr3 Qtr4

BUDGET Total 20% 24% 26% 30%

Budget

Total Sales 16,971,237 3,394,247 4,073,097 4,412,522 5,091,3721

Bathroom 30 5,091,371 1,018,274 1,221,929 1,323,756 1,527,411

fitting %

Bedroom 25 4,242,371 842,562 1,018,274 1,103,130 1,272,843

fitting %

Mirrors 15 2,545,685 509,137 610,965 661,878 763,706

%
Decorative 10 1,697,124 339,425 407,310 441,252 509,137
items %

Lighting 20 3,394,247 678,849 814,619 882,504 1,018,274

Fixtures %

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GST Cash flow analysis

CASH FLOW
ANALYSIS- 2010/11 Qtr1 Qtr2 Qtr3 Qtr4
GST
GST Collected 1,697,124 339,425 407,310 441,252 509,137

Less GST Paid 12,281,358 282,913 306,854 326,325 365,267

GST Payable 415,765 56,512 100,456 114,927 143,870

Aged Debtors budget

AGED DEBETORS TOTAL Qtr1 Qtr2 Qtr3 Qtr4

BUDGET

Sales 16,971,237 3,394,247 4,073,097 4,412,522 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 1% 6,788 8,146 8,825 10,183

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Budget notes:-
Reason for profit and loses:-
 Profits prior year are $851,188 in 2008 and $1,019,499 in 2009.
 Reasons are that there is an increasing customer base and the
business is built on superior after sales service.
 Effectiveness of existing financial management approaches
 Inadequate analysis of revenue/expense to produce an informed
estimate.
 Lack of computer software to produce timely and detailed reports.
 Too much reliance on qualitative input rather than balancing it
with quantitative data and analysis.

Comment on effectiveness of existing financial management

approaches:-
According to my assumptions future sales same sales growth 2010/11 as
2009/10. Inflation will be 4% per annual. Gross profit rate expected to
reduce by 1%

All assumption basis form budget

 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 2009/10 –
$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 2009/10
amounts.
 2010/11 target apportioned across the quarters in the same % as
was achieved in 2009/10.
 Accounting fees fixed amount of $10,000.
 Interest charges $84,508.
 Bank charges same as 2009.
 New expense such as store supplies –2008/09 results was $3,500
of the cleaning expense and $3,605 of the 2009/10 result.

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AMARJIT KAUR ID;- 1113154

1. The statutory requirements for tax compliances are listed below:

* 9% of wages and salaries is to be calculated as superannuation for every

quarter
* 4.75% is payroll tax of wages and salaries for every quarter
* Worker compensation is 2% of salaries and wages for every quarter
* For every quarter the company tax is 30% of net profit before taxes.

Existing liabilities for Houzit are:-

 goods and services tax liability ($1,571,411 collected – 987,626 paid =
$583,785)
 income tax $436, 928
 PAYG Withholding payable $44,872.

2. Current compliance requirement and liabilities for this organization under

the corporation Act 2001.

● An annual return with information about the company and its activities must
be submitted to the Australian Securities and Investment Commission.
● Keep sufficient financial records to explain reports and records must be kept
for seven years.
● Company to abide by the rules set by ASIC for the internal management of
the company.
● Directors are to act within the prescribed limits.
● Directors must keep written records of minutes and resolutions.
● Notify ASIC of the registered office and principle place of business.
● Use company name and ACN on all public documents, business premises,
cheques and ASIC lodged documents.
● Large companies must submit financial statements.
● Public companies must have their financial statements audited.

3. Most suitable software for the Houzit Pty Ltd

A prioritised list of requirements addressing:

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AMARJIT KAUR ID;- 1113154

 For statutory needs of Houzit Pty Ltd especially in when need to assist in
generation of monthly BAS statements, and managing superannuation.
 Workers or user needs the software for login access, multi-user, and
secure data.
 Houzit need software for security security reasons such as to provide a
backup solution.

Identified software that:

 My recommendation for Houzit Pvt Ltd to choose MYOB software for
accounting because it works with the current technology capabilities as
indicated in case study such as it will manage the company accounts
more efficient in long run with all legislative and statuary requirements
for business

4. Principle of accounting in developing budget

a. Matching principle

The matching principle is applied in preparing a budget by making sure that the
revenues for the period are matched with the expenses incurred in earning
that revenue for the period.

b. Account group

Account groups are used in preparing a budget by separating the revenue and
expense accounts into the profit budgets and the asset, liability and equity
accounts into the capital budgets like cash flow and capital expenditure.

c. Time period

Time periods are applied in preparing a budget by applying the accounting

assumption that a going concern can be divided into shorter time periods of
weeks, months, quarters and years for the purpose of budgeting and
reporting.

5. Implication of probity when preparing and revising budget

Following implication of probity need to be consider when preparing and
revising budget for Houzit pvt ltd.

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AMARJIT KAUR ID;- 1113154

 Financial probity requires the preparer of budgets to do so with

honesty, integrity and in an ethical way. This would require objectivity
and conduct that ensures that no conflict of interest exists or is
perceived to exist in the preparation of budgets.
 Others must be advised to be truthful in their assessments, responses
and the documentation of financial transactions and notes to the
budgets.
6. list of critical dates and initiatives’ that will require

- Reduction on the principle of the loan by a payment of $100,000 on the

31 December 2011
- To increase the advertising budget by $ 70,000 over the 2010/11
- To increase wages and salaries’ by $ 172,500 over the 2010/11
- Complete a debtor analysis to reduce cash tied up in outstanding debts.
- Reduce the gross profit rate by 1%.
- A new car for the chairman which will also attract luxury car tax.

7. list of the items I would recommend for inclusion in the budget

- Water bill
- Waste removal
- Staff amenities
- Postage and printing

8. list the new internal controls and risk management for Houzit Pty Ltd
including the maintenances of audit trails

Risk management

Risk Description and A question to ask

response when assessing this
risk
New technology and Change to technology Are all modification to
information system can increase exposure software appropriately
to risk authorized, tested and
documented?
System must be
carefully selected and

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AMARJIT KAUR ID;- 1113154

tested and staff fully

trained.

New accounting New accounting Do accounting staff

pronouncements principles can impact maintain their
on the entity’s technical expertise
financial reports through continued
professionals
development
New personal training New personal often Are all staff required
lack of understanding to complete an
of internal controls induction process that
includes a codes of
conduct?

Internal control
 All discounts to be recorded by company
 Reconcile cash registers daily
 timesheets and supplier invoices shoud be signed or excessed by proper
authorisation
 currency of asset register need to maintain by policy
 communication lines need to be separate according to different
departments or duties
 all houzit staff shoule be well trained according to their job descriptions
 roster duties to minimize fraud possibility.

Audit trails

List of directives for houzit pvt ltd:-

 all cash received receipted on pre-numbered forms, payments via
cheques with stubs completed, voucher system in payments duly
authorised, 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.

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 Proper authority – all payments must be authorised by the person

responsible for the department or cost centre

Assessment Task 2
Monitor and review budget

Variances report

Houzit Pty Ltd

Variances to Budget

First Quarter ended 30 September 2010

Actual Results Budget Actual $ % F or U

Qtr1 Qtr 1 Variances Variances

Sales 3,394,247 3,371,200 23,047 - 0% U

- Cost of Goods 1,934,721 1,955,296 20,575 1% F

Sold
Gross profit 1,459,526 1,415,904 43,622 -3% U

Gross profit % 43% 42% 0% -2% U

Expense

- Accounting 2,500 2,500 0 0% F

Fees

- Interest 21,127 28,150 7,023 33% U

Expense

- Bank Charges 400 380 20 -5% F

- Depreciation 42,500 42,500 0 0% F

- Insurance 3,348 3,348 0 0% F

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- Store Supplies 750 790 40 5% U

- Advertising 200,000 150,000 50,000 -25% F

- Cleaning 3,256 3,325 69 2% U

- Repairs & 16,068 16,150 82 1% U

Maintenance
- Rent 660,127 660,127 0 0% F

- Telephone 2,997 3,100 103 3% U

- Electricity 5,356 5,245 111 -2% F

Expense
- Luxury Car Tax 12,000 12,000 0 0% F

- Fringe Benefit 7,000 7,000 0 0% F

Tax
- Superannuation 37,404 37,404 0 0% F

- Wages & 415,600 410,500 5,100 -1% F

Salaries
- Payroll Tax 19,741 19,741 0 0% F

- Worker 8,312 8,312 0 0% F

Compensation

Total Expense 1,458,488 1,410,572 47,916 -3% F

Net Profit 1,038 5,333 4,295 80% F

(Before Tax)

Income Tax 311 1,600 1289 128% F

Net profit 727 3,733 3006 300% F

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Debtor ageing Ratio

2009/10 2010/11 2011/12

Trade Debtor 850,000 975,000 1,118,325

Sales 14,550,100 15,714,108 16,971,237

Debtor Days 21 22 24

Cash flow analysis

A cash flow budget helps to identify any shortcoming or excesses in cash

forecast able future. Cash flow budget can be set for weekly, monthly or
quarterly with the format usually determine by the organization’s policy and
procedures.
Following budget cash flow analysis for houzit pvt ltd is made for quarterly.

Cash flow analysis Budget Qtr 1 Actual Qtr

GST 1

337,120
GST Collected 339,425

282,913 279,988
Less GST Paid

56,512 57,132
GST payable

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Issues and reasons

There are some issues are identified according to the information provided.
Such as:

- It had been a tough quarter with the economy still in the recession and
the impact this was having on the retail sector.
- Bank are raising interest rates in line with the increased upward
international pressures and Houzit has a significant part of their loan
funds on a variable interest rate which change directly with market
conditions.
- The sales seems to be holding up reasonably well as first quarter results
are generally impacted by factors relating to public and school holidays
but there was concerned about the discounts that had to be given to
generate these sales.

Causes:

- Houzit could not get into some national magazines this quarter to
promote the store offers.
- It helps the Houzit exceed the set budget.
- Wages and salaries running bit high.

Variances

Typical variance report will compare actual to budget and create a $ variances
to the budget and a % variances to it as well. These two variances highlight
areas that need to be investigated for corrective action.

Houzit Pty Ltd

Variances to Budget

First Quarter ended 30 September 2013

Actual Results Budget Actual $ % F or U

Qtr1 Qtr 1 Variances Variances

Sales 3,394,247 3,371,200 23,047 - 6% U

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- Cost of Goods 1,934,721 1,955,296 20,575 1% F

Sold
Gross profit 1,459,526 1,415,904 43,622 -3% U

Gross profit % 43% 42% 1% -1% U

Expense

- Accounting 2,500 2,500 0 0% F

Fees

- Interest 21,127 28,150 7,023 24% U

Expense

- Bank Charges 400 380 20 -5% F

- Depreciation 42,500 42,500 0 0% F

- Insurance 3,348 3,348 0 0% F

- Store Supplies 750 790 40 5% U

- Advertising 200,000 150,000 50,000 -33% F

- Cleaning 3,256 3,325 69 - 2% U

- Repairs & 16,068 16,150 82 0.5% U

Maintenance
- Rent 660,127 660,127 0 0% F

- Telephone 2,997 3,100 103 3% U

- Electricity 5,356 5,245 111 2% F

Expense
- Luxury Car Tax 12,000 12,000 0 0% F

- Fringe Benefit 7,000 7,000 0 0% F

Tax
- Superannuation 37,404 37,404 0 0% F
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- Wages & 415,600 410,500 5,100 1% F

Salaries
- Payroll Tax 19,741 19,741 0 0% F

- Worker 8,312 8,312 0 0% F

Compensation

Total Expense 1,458,488 1,410,572 47,916 3% F

Net Profit 1,038 5,333 4,295 80% F

(Before Tax)

Income Tax 311 1,600 1289 128% F

Net profit 727 3,733 3006 300% F

Actual to budget

There are many differences between the set budget of first qtr of the Houzit
and actual of the first qtr. Such as -6% differences in sales and 1% in cost of
good sold. Gross profit has a 1% if difference between in actual and budget
that is a favorable. There are many things are same in the actual and budget
such as - Accounting Fees, Depreciation, Insurance, Luxury Car Tax, - Fringe
Benefit Tax, Superannuation, Payroll and worker compensation etc. . The big
difference is in the net profit and income tax.

The biggest reasons for variances are occurred because of the recitation hit to
the economy and the bank interest rate are also increased. The one other
factor is discount that had to be given to generate the sales.

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Performance

As per needs for future profit expectations budget is still low in margin as
comparative
 4% profit margin is recommend that this margin is carefully considered
in future periods to ensure that they are more substantial and are
building towards an annual margin in alignment with previous years.
 Wages and salaries a little high with 12.2% at Houzit as a 22% ofsales,
however the industry average is more like 11%.
 Due to retail economy in recession and bank interest rates increased
gross profit drop by -1 % But Net profit should have been much better
given the $50,000 saving in advertising.
 Average time for debtors to pay accounts is increasing, however, there
should not be a concern to cash flow as yet as a majority of debtors
remain within 30 days.

Response to board questions;-

 Houzit’s financial viability for profit on target for the first quarter which
is the seasonally slowest quarter of the year.
 The variance report identifies the gross profit margin that the company
was able to maintain its gross profit margin in line with the budget.

Recommendations

Analyzing profitability and cash flows should be take over a series of past
period to identify trends in the underlying data of this analysis should be on:

Growth, Stability, Sustainability:-

 The potential for the business and the way the growth is to be
adequately managed. Such as the discount policy needs to review to
protect the gross profit margin.
 Loan amount needs to reduce exposure to rising interest rates for more
growth for the company.
 Salaries and wages policy needs to review to manage the budget, extra
reduce costs and improve viability.

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Plan to revise the budget to include adjustments to the advertising budget with
the $50,000 added to the next quarter.
 Loan amount needs to reduce exposure to rising interest rates for more
growth for the company.
 Salaries and wages policy needs to review to manage the budget, extra
reduce costs and improve viability
 Apply more discounts on public holidays

Evaluation
 Budgets is prepared for all cost centres such as all cleaning and
maintenance charges, bank interest rates, insurance and all taxes.
 Budget monitoring and reporting policy is shortened to monthly basis.
 Restructure loan into fixed interest rate to take out the volatility in result

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