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Finance Assignment: Tasks on Budgeting, Financial Forecasting & Reporting

s on the budget Once the budget highlights were being presented, then the QnA session was opened where the stakeholders from different team asked several question and appropriate answers were given. Ami MEETING CONCLUSION How did the stakeholders react to the budget? The stakeholders took interest in listening to the budget, the assumptions, the one-timers and the variables which have been considered. There were ready to give inputs from there end as well and quick to raise questions in case of any doubts. During the QnA session, they came up with various questions and the same were answered by the panelists one by one. One of the major questions was on how to control the costs and what the measures which needs to be employed in the organization for long term wealth creation and cost control to which Adam, the operations manager replied that all the costs should first be divided in 2 categories – discretionary and non-discretionary and discretionary costs should then be looked upon for savings measures(Ehalaiye, et al., 2018). 2. The process of cash register management can be rectified in the following way This is one of the common errors which leads to cash mismanagement and fraud in the long run but this can be corrected using the automated cash management software’ available in the market. The software is linked to the cash box and will open and close the cash box once the amount is collected. In case the invoicing is done and the cash is not collected, the cash box will remain open and will not proceed to the next transaction. Another possible way in which this could be avoided is the segregation of duty where one person will be responsible for managing the cash counter and another person for invoicing and the third person for cash reconciliation – this would avoid such practices like taking cash without permission or records. Lastly, the CCTV can be installed in the organization which will create and element of psychological fear in the minds of employees who do it intentionally. 3. Comment on the different trends on profit and loss account, cash flow and the ageing summary of Brewed Better Coffee company. From the above shown profit and loss statement, it can be seen that the revenues of the company has grown incrementally from 2016 to 2020, with the last 2 years growth in excess of 20%. The cost of revenues has also increased proportionately and the gross profit has been in and around 60%. The company also incurs several variable expenses like research and development expenses, sales and marketing expenses and general and administrative expenses as well, all of which has increased steadily during all these years. Expense as a percentage of sales has gone up from 72.25% in 2016 to 76.41% in 2020 and thus the same needs to be controlled(Vercio, 2018). The company also has other income (net of expenses) which has marginally increased from $496000 to $1047000 in 2020. The provision of income tax is computed based on several adjustments and the same has increased staggeringly in 2020 to $14,531,000 from $4,672,000 in last year. This has resulted in decrease of the net profit after taxes from $19,478,000 to $12,662,000 in 2020. In case the cash flow of the company is being reviewed during the year, it can be seen that the company started with $50201 as opening balance and incoming cash from sales increased in the second half of the year. The major line items constituting the cash outflows were purchases, accountants’ fees, bank fees and charges, interest payment, credit card fees, electricity and utilities expenses, telephone bills, rent and rates, motor vehicle expenses, repairs and maintenance and printing and stationary. The company also incurred expenses on account of wages, superannuation, insurance and income tax. The company made a loan and lease payments throughout this period. The overall cash outflow has been ~11k – 12k during this period. The closing balance of cash has increased to $374671 during this period ended June 2020(Dumay & Baard, 2017). The above shown aging summary shows that almost 213.55 is within the credit period and has still not become due. Almost 20 falls with the outstanding period of 1-30 days and it is from customer namely Zara. There is no outstanding in the bracket 31-60 days. In 61-90 days, again the outstanding of 25 is from Zara. There is a lot of outstanding receipts which are aged more than 90 days and the major contributors to it are Zara (127), JB Hi-Fi (77), Chemist Warehouse (25), etc. The overall outstanding as on date is 529.66 out of which customers – Zara and JB Hi-Fi needs to be focused as it constitutes nearly 82% of the overall receivables(Delone & Mclean, 2004). 4. Contingencies are the buffer which may be added to budget to counter the element of risk and uncertainty. There can be instances where the company is in a situation when it may not be achieving the revenue or income targets which have been set or it may be spilling over in terms of the expenses budget which has been allocated to the department. It may be due to some unforeseen events like floods, business loss, COVID, etc. and in such a scenario, contingency fund helps in overcoming this one-timers. The contingencies should also be factored in the budget and that’s why the budgets should be revised. The procedure for revision of budget has been mentioned below: The initial request for the change in the budget should go to the owner of the budget as to why the changes and revisions are required in the budget. The budgets need to be revised once the approval is given for change in the budget. The revised budget highlighting the change in variable, the change in assumptions and reason for the changes should be sent to the owner. The owner may then send the revised budget to the accountant for recommendations on the changes made(Fukukawa & Mock, 2011). The respective finance manager will then review all the changes and the recommendations made and provide the review comments as to whether the changes are acceptable or not. Once the changes and recommendations are given effect to in the budget, the final version of the budget is then circulated with the respective stakeholders and departments. 5. The statement of discrepancy for the month of Feb 2020 in the company’s bank account and cash account has been shown below: Balance as per Bank Account as on 29th Feb 2020 528,948.76 Add: Woolworths expense for 3rd Feb 2020 100.00 Add: Coffee beans from XYZ on 20th Feb 2020 240.00 Balance as per Cash Account (General Ledger) as on 29th Feb 2020 529,288.76 From the above summary, the discrepancies can be easily spotted for audit trail purposes. Assessment 3 Introduction Brewed Better Coffee Shop is one of the widely known coffee shops in Australia’s Melbourne town. The address where the café is situated is 360 Little Bourke St, Melbourne VIC 3000, Australia. The café is famous for serving different types of coffee and has bene in business for the last 10 years. The customers, the area of service, the business and the revenue have grown manifold during this period. The purpose of writing this report is to identify and prioritize the significant issues in the financial statements of the café, the financial performances over the years and how can the financial management process of the organization can be made more effective. The report also highlights the key recommendations to ensure the financial viability of the organization in terms of incomes, expenses, profit, loss, cash, assets and liabilities(Gill, et al., 2018). Review of financial documents On reviewing the financial statements of the Brewed Better Coffee Shop, it can be seen that the company has grown both in terms of topline as well as bottomline over the years. However, in 2020, the net income declined due to increase in expense ratio as well as increase in taxes. In terms of cash flow of the company, the company started with ~$50K cash and with the monthly net cash inflow of ~20-32k, the closing balance of the cash increased to ~375k. Thus, it can be said that the company is cash rich. In case budget is analyzed, the company has missed the profit and revenue target in most of the months and in the month of September, the utilities cost increased staggeringly to $6625 as against the monthly fixed expenses of $625 which is not explainable. Likewise, the expenses have not been categorized into fixed and variable expenses and hence, it is difficult to understand and interpret for the users as to what is changing with sales and what is fixed for the month. The cash flow is healthy but month on month the same is cumulating and it is lying idle. The company’s management can employ the funds for growth of business or can use it for expansion purposes as well. In terms of the balance sheet, the company’s current ratio was 6.29 times in 2019 and 5.14 times in 2020 and it clearly shows that the company is not using its resources effectively and efficiently. It is blocking a lot of funds in the idle cash. The shareholder’s equity has increased constantly year on year which means there has been constant profit for the company which is a positive indicator. Lastly, it was found that the bank statement and the cash ledger were not matching, and a bank reconciliation statement was to be made in order to reconcile the balances(Michaela, 2017). It is thus recommended to put the system in place like variance analysis, monthly review of financials, preparation of bank reconciliation statement on a monthly basis so that the decision making can be made effective and efficient. Recommendations(Just one or 2 sentences is more than enough) Cash flow: The cash flow should be divided category wise between operating activities, investing activities and financing activities so that it is easy to understand what the sources of cash and where it is being utilized. Changes in business activity, including markets, goods or services traded: A risk control matrix so that all the risks and opportunities with respect to the market, the products and services, competitors and economy can be consolidated and appropriate actions can be planned for the future. Consolidation: This is a very important aspect to look at the big picture and thus it is important to look at the consolidated results and performance of the division or department. Expenses and overheads: The expenses and overheads should be bifurcated into variable and fixed both in budgets as well as in financials so that it is easy to understand and interpret. Labor costs, including decisions to move production to other locations or sites: For this, scenario modelling should be done before making any decision or conclusion as to what the cost and benefit for different location or sites will be. Loss: The loss should be calculated period wise (monthly) as well as department wise to enable better decision making. Profit: The profit should be calculated period wise (monthly) as well as department wise to enable better decision making. Write-offs: The write-offs if any with respect to receivables or payable should be approved by the management and the reason for writing off should be documented well for audit trail. Effectiveness of financial management Brewed Better Coffee shop has a relatively strong accounting and management system however there are few areas of improvement where the company can improve. The company should be strategizing to improve the allocation of working capital and resources within the business to achieve synergy. The company should also come with system improvement like segregation of duties, bank reconciliation system, maker, reviewer and checker system, etc. to avoid errors(Kew & Stredwick, 2017). The company may also come with some measures to improve the budgeting and forecasting process with close alignment with different teams. The company can also come up with a dashboard consisting of monthly MIS and ratios and the reasons for the variances with budget and previous year which will enable decision making and quick summary. For the purposes of funding, the company can look for both internal as well as external funds and this is required for business expansion purposes. Conclusion From the above discussion and analysis, it can be concluded that the company has performed well both in terms of revenue as well as profitability. The company has also increased the asset base however there are various areas and systems where they shop can improve upon and this will be required for long term growth. Assessment 4 A1 Identify the requirements for Financial Probity The requirements of financial probity have been mentioned below: The officials should act ethically as per the prescribed rules and litigations under the APS Values (set out in section 10 of the Public Service Act 1999) and Code of Conduct (set out in section 13 of the Public Service Act 1999), and should not make any improper use of its position. The officials should not place themselves in any position in which any kind of self-benefits or personal motives are involved. All the information that is private should be treated appropriately during and after the process of procurement. In case it is needed as per the nature of the procurement in that case external probity specialists must be appointed in that case(Raiborn, et al., 2016). The agencies should be honest and ethical and should treat all the tenders on an equitable basis which means due consideration should be given to all the agencies. Effective probity measures help in making sure that there is value for money for the work that is done, and the outcome is genuine. A2 Describe the principles of accounting and financial systems The principles of accounting and financial systems have been explained below: Principles of Accounting- 1. Accrual basis of accounting – It states that as and when the transactions occur, they should be recorded in the books of account and not when the cash flow associated with them is paid or received. For example- Rent should be recorded in the month it was accrued and not when it was paid. 2. Conservatism Principle – It states that as soon as the company has any indication of any expense that may occur in the future then they should record it then and there like the companies record the provision for bad debt, repairs etc., in case such expense occurs in the future. In case of income it should be recorded only when the company receives the same. 3. Going Concern Principle – It states that the company will continue its business for an infinite period and there will not be any chances that the company will shut down in the new future so investors can invest in the company(Arnott, et al., 2017). 4. Cost Principle – It states that the company should record all its assets liabilities and expenses at the cost it was incurred and not at any other cost like market value or net value. 5. Consistency Principle – It states that once the company adopts any accounting principle or method then the same should be followed without changing it until there is any better accounting principle or method found. 6. Full Disclosure Principle- The company should provide all the information related to its finances to the best of knowledge and all the facts should be stated correctly in the notes to account of the company so that the stakeholders have all the knowledge related to the company. 7. Matching Principle – It states that in case the company is recording income related to any item then expenses related to the same item should be recorded consistently. For example, with the sale of goods, the cost of goods also needs to be recorded. 8. Materiality Principle – It states that the transactions or items should be recorded in the books of the company only when it is material which means it can alter the decisions of the company. 9. Reliability Provision- It states that the transactions that are correct and reliable should be recorded in the books of the company and not on a doubt basis. 10. Time period principle – It states that the business should follow a standard time period for which it should record its expenses and income. For example – every company follows a financial year which is from April to March or Jan to Dec. All the transactions that accrues in that particular selected period should be recorded in that period only. A3 Explain AUSTRALIAN, International And Local Legislation And Conventions That Are Relevant To Financial Management In An Organization Financial Management and Accountability Act 1997- This act helps in understanding the differences between public property and private property and managing both of them. This Act provides a framework for the same and has provided proper deviation of public and private property in section 5 of the stated Act. Financial Corporations (Transfer of Assets and Liabilities) Act 1993- This Act contains the provisions that guides the transfer of assets and liabilities to and from a financial corporation and provides information related to the same. Financial Sector (Collection of Data) Act 2001 – It controls the collection of data from the financial sector and retention and use of the same in other sectors. It guides how the data collected would be used and also kept safe and secure(Gooley, 2016). Financial Framework (Supplementary Powers) Act 1997- An Act that provides supplementary power that can be used to make rules related to spending of money, providing commitment related to the same and management of the same. Financial Transaction Reports Act 1988- This act guides how certain transactions would be recorded in the financial sector in their given books of account and also impose certain obligations in relation to accounts and manage the same. While preparation of the financial statements, the Corporations Act, 2001 and the Australian Accounting Standards have to be applied. A4 Outline The Requirements Of The Australian Tax Office, Including Goods And Services Tax, Company Tax, Pay As You Go. As per the ATO (Australian Tax Office) every business has to submit a monthly report of all its business activities known as the business activity statement (BAS) on a monthly, quarterly and annual basis. It has to file a GST report if eligible for the same. It serves the purpose for reporting of GST, paying the instalments, paying off the withholding tax and suffice other tax related obligations. It is necessary that the companies must pay for GST in case their earnings are more than $75,000. It is also mandatory to register for GST and provide necessary cooperation during all the audits that are performed. All the company tax related obligations must be calculated and paid on quarterly basis. Mostly businesses shall pay the instalments that are calculated on their earnings and the rates of instalments are calculated by the ATO. These will be considered as cash outflow from the business affecting the cash flow statement as these will be paid out in cash(Zlokazov, 2020).In case any business is providing any non-monetary employment benefits then the business needs to pay FBT. It should be recorded as needed by the FBT law. As an employer the company is required to deduct withholding taxes in order to help the employees remit their year-end liabilities on time. This is collected using pay as you go withholding amounts from payments made to employees, contractors and businesses who don’t quote Australian business number on invoices. References Arnott, D., Lizama, F. & Song, Y., 2017. Patterns of business intelligence systems use in organizations. Decision Support Systems, Volume 97, pp. 58-68. Delone, W. & Mclean, E., 2004. Measuring e-Commerce Success: Applying the DeLone & McLean Information Systems Success Model. International Journal of Electronic Commerce, 9(1).Dumay, J. & Baard, V., 2017. An introduction to interventionist research in accounting.. The Routledge Companion to Qualitative Accounting Research Methods, 1(1), p. 265. Ehalaiye, D. et al., 2018. Are Financial reports useful? The views of New Zealand Public vs Private Users. Australian Accounting Review. Fukukawa, H. & Mock, T., 2011. Audit risk assessments using belief versus probability. Auditing: A Journal of Practice & Theory, 30(1), pp. 75-99. Gill, A. Q., Henderson-Sellers, B. & Niazi, M., 2018. Scaling for agility: A reference model for hybrid traditional-agile software development methodologies.. Information Systems Frontiers, pp. 315-341. Gooley, J., 2016. Principles of Australian Contract Law. 2 ed. Australia: Lexis Nexis. Jefferson, M., 2017. Energy, Complexity and Wealth Maximization, R. Ayres. Springer, Switzerland. Technological Forecasting and Social Change, pp. 353-354. Kew, J. & Stredwick, J., 2017. Business Environment: Managing in a Strategic Context. 2nd ed. London: Chartered Institute of Personnel and Development. Knechel, W. & Salterio, S., 2016. Auditing: Assurance and Risk. 4th ed. New York: Routledge. Langley, A. & Ravasi, D., 2019. Visual artifacts as tools for analysis and theorizing. The Production of Managerial Knowledge and Organizational Theory: New Approaches to Writing, Producing and Consuming Theory, Volume 59, pp. 173-199. Lessambo, F., 2018. Audit Risks: Identification and Procedures. Auditing, Assurance Services, and Forensics, 3(1), pp. 183-202. Linden, B. & Freeman, R., 2017. Profit and Other Values: Thick Evaluation in Decision Making. Business Ethics Quarterly, 27(3), pp. 353-379. Marques, R. P. F., 2018. Continuous Assurance and the Use of Technology for Business Compliance. Encyclopedia of Information Science and Technology, pp. 820-830. Meroño-Cerdán, A., Lopez-Nicolas, C. & Molina-Castillo, F., 2017. Risk aversion, innovation and performance in family firms. Economics of Innovation and new technology, pp. 1-15. Michaela, R., 2017. Contemporary Issues in Accounting. 2nd ed. London: Wiley. Prideaux, B., Thompson, M. & Pabel, A., 2020. Lessons from COVID-19 can prepare global tourism for the economic transformation needed to combat climate change. Tourism Geographies, pp. 1-12. Raiborn, C., Butler, J. & Martin, K., 2016. The internal audit function: A prerequisite for Good Governance. Journal of Corporate Accounting and Finance, 28(2), pp. 10-21. Vercio, A., 2018. Process Costing: The Most Important Subject in the Management Accountant's Curriculum. Journal of Corporate Accounting & Finance, 29(2), pp. 141-150. Verma, A. & Prakash, S., 2020. Impact of covid-19 on environment and society. Journal of Global Biosciences, 9(5), pp. 7352-7363. Woolworths, 2020. Annual Report, s.l.: Woolworths Group Limited. Zlokazov, D. V., 2020. Project Management vs Systems Engineering Approach to Project Risks Management.. KnE Engineering, pp. 208-212.


Subject Name: Finance

Level: Undergraduate


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