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 16,971,23 3,394,247 4,073,097 4,412,522 5,091,372

7 1

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 5,091,37

1
% Debtors Sales 20% 20% 20% 20%
Total Debtors 100% 678,849 814,619 882,504 1,018,27

4
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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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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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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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
System must be documented?

carefully selected and

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tested and staff fully

trained.

New accounting New accounting Do accounting staff

pronouncements principles can impactmaintain their
on the entity’s technical expertise
financial reports through continued
professionals
development
New personal training New personal often Are all staff required to
lack of understanding complete an induction
of internal controls 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
GST Collected 339,425 337,120

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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