MANAGE FINANCE

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 Table of Contents
A1....................................................................................................................................................4

Task 1...........................................................................................................................................4

Introduction..............................................................................................................................4

1. Methods of making a plan for financial management..........................................................4

2. Steps in creating a budget.....................................................................................................5

3. Methods of implementing the budget...................................................................................6

4. Types of reports....................................................................................................................7

Conclusion................................................................................................................................8

Task 2...........................................................................................................................................8

1. Determining the requirements for financial probity.............................................................8

2. Principles of finance and accounting system.....................................................................10

3. Explaining Australian, local and international legislation for financial management.......11

4. Requirements of the Australian Tax Office.......................................................................13

A2..................................................................................................................................................14

1. Planning for financial management.......................................................................................14

2. Preparing budget....................................................................................................................15

3. Allocate funds........................................................................................................................19

4. Analyzing effectiveness of financial management................................................................20

5. Reporting on finance..............................................................................................................20

6. Implementing the budget.......................................................................................................21

7. Requirements of ATO............................................................................................................23

8. Contributing to financial instruments....................................................................................23

A3..................................................................................................................................................23

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 Question 1..................................................................................................................................23

Question 2..................................................................................................................................24

Question 3..................................................................................................................................24

Question 4..................................................................................................................................24

Question 5..................................................................................................................................25

Question 6..................................................................................................................................25

Question 7..................................................................................................................................26

Question 8..................................................................................................................................26

Question 9..................................................................................................................................26

Question 10................................................................................................................................27

Question 11................................................................................................................................27

Question 12................................................................................................................................27

References......................................................................................................................................28

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A1

Task 1

Introduction

This report contains information about the process of implementing a budget and monitoring
budgeted activities. Along with this, the procedures of identifying the budget variances will also
be analyzed over here. The method of making a financial management plan will be identified to
ensure the effectiveness of the financial management process. Statutory requirements and the tax
requirements in budget preparation will be discussed in this report.

1. Methods of making a plan for financial management

a. In order to determine the previous year's profit and loss, analysts will need to examine the past
year's annual report of the Company. Some financial factors need to be taken into consideration
for evaluating the profit and loss figures, such as net revenue, Operating income, Gross Income,
and Net Income (Schroeder, Clark and Cathey, 2019). These are considered as the major
financial elements collected from the income statement. Gross, operating and net profit, all are
important to make financial decisions. Net revenue is needed to analyze the weight of profits
with respect to the revenue structure.
b. Through examining the last year's income statement, the actual profit or loss of the
organization can be identified by analysts. After that determination, proper reasons will also need
to be investigated for each resulting outcome. With respect to investigating the previous profit or
loss, financial analysts are needed to investigate the Notes to accounts. Besides that, all the
vouchers available to support the financial transactions involved in the income statement will
also need to be taken into consideration.
c. Business plan contains several activities, out of them the process of utilizing the resources is
considered as another part of the business plan. In order to establish the critical dates and the
initiatives, resource planning will need to be analyzed by the management. Besides that, it is also
required to ensure that the claims are independently verified. Based on that information, the date
will need to be documented (Kimmel, Weygandt and Kieso, 2018). The additional fund required

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for resourcing the capital will also need to be documented. The sufficiency of each financial
figure will need to be verified.
d. In order to analyze the cash flow trend, two factors need to be taken into consideration, such
as Inflows and Outflows. Thus, different types of accounting ratios also need to be computed,
such as Inventory turnover ratio and Operating cash margin. Through comparing the ratio of the
last two years, cash flow trends can be analyzed. Besides that, the cash cycle will also require to
be calculated, which reflects the trend in financial performance with respect to the cash inflows
and outflows.
e. Determining the compliances of the regulations of the Australian Tax Office (ATO) and the
amount of tax payable depends on the business structure. It means that the process of analyzing
the compliances of ATO will be different in various kinds of business structures (Grayson and
Hodges, 2017). Sole traders are paying tax on business income, partnership business has paid tax
on net partnership income and the Company will pay tax on assessable income.
f. In order to report the financial data, up-to-date software will need to be implemented in the
business environment. As per the market analysis, MYBO, Xero and Quickbooks have been
contemplated as the most advanced financial management software. MYBO is mainly used to
create the report by providing the inputs of financial data. Management by using the SaaS cloud
computing system implements Xero.

2. Steps in creating a budget

a. Financial budget is considered as a major part of a business plan that requires ongoing
attention to ensure successful commercial activity. In order to ensure the allocation of resources,
financial information will need to be collected from three sources, such as Historical
information, Current activities, and Best guess. Through analyzing the resource allocation plan,
its efficiency can analyze. Besides that, financial assumptions related to budget monitoring plans
will also need to be taken into consideration.
b. After preparing the budget, it will be very difficult for the management to arrange the
additional fund for any extra activities (Jiambalvo, 2019). The approval of management in a new
item will depend on its presentation. In order to include a new item, its expenditure will require
to be prepared and convince the management for inclusion in the budget. In any case, if the
expenditure will be higher than the ability of management, then it might be rejected.

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c. In order to consider the organizational requirements and the statutory requirements, all the past
performances will need to be considered. After that, those financial factors, which have affected
the budget of that tenure, will need to be documented. Then, improve the budget plan to meet the
organizational requirements. In order to ensure the statutory requirements, a Cost-benefit
analysis will need to be conducted to implement the zero based budgeting.

3. Methods of implementing the budget

a. In order to understand the budgeting process, responsible people will need to be identified for
each budgeted activity. As the stakeholders are the owner of the budget, thus, the entire budget
schedule will need to be examined from the viewpoints of stakeholders. Besides that, the
management will need to communicate with business management and supervisors. This
information will justify the performances of supervisors and managers in complying with
reporting requirements and financial delegation.
b. In order to ensure the proper maintenance of budgeted activities, the actual performances will
need to be compared with the budgeted structure. It helps in determining the shortfalls available
in financial activities. As stated by Lins, Servaes and Tamayo, (2017), the budget will need to be
audited to ensure that no opportunities are available for the misappropriation of funds. Through
comparing the actual performances with budgeted structure, it could be ensured that all the
records are maintained properly.
c. In order to review the financial statements and aging summary, financial analysts will need to
monitor the budget and compare the actual activities with the budgeted structure. After that, the
variations analyzed from such comparison will need to be documented in the budget paper. After
that, the gross and net profit will need to be calculated for comparing with budgeted net income.
These factors will help in reviewing the income statement. Operating cash flow statements will
help in reviewing the cash flow.
d. In order to deal with contingencies, all the identified variations need to be separated into two
parts, such as favorable variation and unfavorable variation. After the identification of variances,
it's possible reasons also need to be taken into account. Based on the reasons for the variations,
management will need to revise its budget for avoiding the contingencies. Through updating the
financial plan, a business organization can avoid the contingencies to strengthen the financial
structure.

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e. In order to ensure accurate tracking, management will need to maintain the audit trail. Thus, a
good financial record-keeping system will need to be adopted in the business environment. It
helps in monitoring business activities concerning the budget schedule. Requirements of extra
funds will also need to be analyzed for ensuring the effective allocation of financial resources.
An effective financial reporting system helps in meeting the tax requirements.
f. In order to implement budget through securing the compliances, statutory requirement, and due
diligence, management will need to implement an effective financial record keeping process
(Ali, Frynas and Mahmood, 2017). It will generate the tax report automatically, based on the tax
rate and expected income. Thus, it will meet the tax requirements and statutory requirements.
g. Through analyzing the actual financial performance, the resulting outcome will need to be
compared with the budget structure. After that, variations are needed to be calculated for
determining the discrepancies in the financial plan. All the discrepancies will need to be
separated following the financial characteristics.

4. Types of reports

a. Mainly three financial reports will need to be prepared, such as Balance sheet, Cash flow
statement, and Income statement. All these financial statements will be prepared following the
IFRS regulations to ensure statutory requirements. Income statements will reflect business
incomes and expenses. A cash flow report and the asset will present cash inflow and outflows
and liability will be presented by the balance sheet.
b. In order to identify the significant issues available in a cash flow statement, an increase and
decrease in stock level will need to be taken into consideration. Purchase orders, invoices, and
petty cash balances will need to be examined for determining the issues of income statements.
c. Preparing a budget is not an accounting exercise only, the preparation of a budget varies on the
business situation (Christensen et al. 2017). In order to recommend the viability of the
organization, management will need to communicate with relevant staff about the business
operations. Five factors will need to maintain while approving a budget, such as:
● Credibility
● Justification
● Presentation
● Communication skill

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 ● Business condition
d. In order to evaluate the effectiveness of the financial management process, the business
objectives will need to be compared with the budget plan. Financial managers will need to be
engaged with the workplace activities to determine regular performances. These activities will
ensure the effectiveness of the financial management process.

Conclusion

According to the analysis, it was determined that the effective financial management process can
ensure the accountability of financial reports. Besides that, the processes of reviewing financial
statements have been discussed in this report to increase the efficiency of financial management.
The financial factors need to be considered while making a budget and including new items in
the budget has been identified. In order to improve the financial activities, MYOB and Xero have
been recommended as the advanced information technology of financial accounting.

Task 2

1. Determining the requirements for financial probity

In order to maintain financial probity, organizational management will need to maintain strict
obedience to the codes of business ethics. Accountability and integrity have been considered as
the main requirements of financial probity. Companies are responsible to comply with these
codes of business ethics, beyond the legislative requirements. As an organization, financial
probity has been considered as an important factor. Major requirements for financial probity are:
● Employees will need to perform, through considering the APS values of Section 10 of
and the Ethical codes of Section 13 of Public Service Act 1999 (Hapsoro and Suryanto,
2017)
● All the tender participants will need to be treated equally and fairly. Besides that,
management will be required to avoid providing special advantages to any single tender.
● Maintaining accountability and integrity while conducting confidential business activities
● Ensure the transparency and accountability of tender process, evaluation process,
negotiation, and managing contractual activities

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Financial probity is mainly determined in construction procurement principles. In order to
analyze the requirements for financial probity, the requirements of Public Construction
Procurement agencies will need to be identified. At the time of undertaking the PCP, agencies
will need to:
● Maintain confidentiality in case of important information, such as the information
sensitive to commercial activities and the information related to intellectual properties.
● Ensure that all the tender processes and construction managerial activities will be
performed and maintained with due care and transparencies
● Proactively determine the conflicts of interests and manage these conflicts with relevant
legislation. Legal policies and procedures will need to be included in this conflict
management process (Appelbaum et al. 2017).
At the time of conducting the construction procurement activities for the public services,
agencies are responsible to comply with Public service values. It reflects the requirements of
financial probity. In order to treat all tenders equally, all the tenders’ participants should be
provided with similar information and the details of the construction project. All the tenders will
need to be provided with similar facilities to maintain equality. In terms of maintaining
confidentiality, not all the documents collected from the tender participants will need to be
recorded in a safe place and those documents should be accessible to the unauthorized person.
Information related to the data room, access will be required to be recorded for maintaining the
transparency of the construction process.
In respect to compliance with the Public Service Act 1999, the management of agencies will be
required to perform their activities with due honesty. The agreements signed between the tender
participants and the agencies must not be accessible to the other authorities and tender
participants. As commented by Nitzl and Chin (2017), any kind of payments received from the
third party will need to be recorded in the financial books to trace the receipts. Employees of
such agencies must not receive any bribery in terms of secret commission from any tender
participants. No additional charges will not be charged to the participants. In order to maintain
financial probity, organizational management will need to comply with such regulations.

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2. Principles of finance and accounting system

According to the International Accounting Standard, three accounting principles are needed to
be taken into consideration by all business organizations. Based on the global regulations, these
three accounting principles are:
a) Accounting entity concept
b) The reliability principle
c) The going concern
In order to maintain accountability in financial performances, organizational management will be
required to comply with these three principles.
a) Accounting entity concept
According to this accounting principle, organizational management is required to maintain
separate entry from the business wonders. It means that business organization will be treated as a
separate individual resident of the country rather than its business owners. The Company seal
will be considered as its ignition, as the Company will be capable of entering into a contract by
providing its seal or stamp. Not all the business income generated from the daily activities will
be considered as the income of the business owner, as it will be treated as the income of the
Company (Di Vaio and Varriale, 2018). The Business owners will be capable of taking their part
of compensation from the company account.
b) The reliability principle
By complying with this accounting principle, all the business expenses will need to be recorded
after verifying its requirements to fulfill the business objectives. Along with this, objective
evidence will need to be maintained for each expense, such as:
● Bank statement
● Purchase receipts
● Appraisal report
● Canceled cheques
These basic pieces of evidence need to be kept for justifying any specific expenses or financial
transactions. It means that all the income actually received in the company account will be
recorded as the income and the expenses actually incurred by management will be considered as
business expenses (Ekpo et al. 2017). It is considered as the cash basis of accounting.
c) The going concern

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It is contemplated as a fundamental assumption of the accounting process. The main factor is that
organizational management will need to conduct their accounting activities after assuming their
entity as a going concern. It means that the management is required to estimate the sustainability
of the entity to proceed with the financial activities. It reflects that the Company is financially
stable to secure its obligations. As an impact of complying with these principles, the value of
assets and some expenses might be deferred in the financial statements.

These are the major financial principles that need to be taken into accounting while performing
accounting activities. In addition to this, some other accounting principles are also available in
financial theories, which need to be considered by every business organization. Those principles
are:
● Consistency principle: After deciding a specific accounting principle, organizational
management will need to stick with that principle.
● Cost principle: Assets, equity, and liabilities will need to be recorded in actual cost
incurred by the management.
● Full disclosure principle: All the financial factors will need to be disclosed in the
financial statement (Welch et al. 2017). It means that the changes in accounting policy
during a specific financial year will need to be disclosed in the annual report.

3. Explaining Australian, local and international legislation for financial management

According to the Australian financial market, several regulatory bodies have been identified in
Australia, such as RBA, ASIC, and AASB. The regulation introduced by any of the mentioned
authorities will definitely be considered as the Australian legislation for financial management.
In this section, the legislation of ASIC will be discussed to explain the relevance of such
regulation on financial management.
According to the guideline of the Australian Security and Investment Commission, they have
introduced an instrument, such as the Financial benchmark instrument 2018/420. This Specific
instrument has been issued under the section, 908AC (2) of the Corporation Act 2001. This
Australian financial legislation states that ASIC has declared that financial benchmark to ensure
the reliability of financial performances of business organizations. After Implementing this
benchmark, ASIC authority has ensured that:

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 ● It is important to the Australian financial system for maintaining financial integrity
● It will reduce the Material risk for financial contagion. Besides that, the risk of systemic
instability and integrity will be reduced.
● Due to the unavailability of the integrity of financial benchmark, retail and wholesale
investors will be affected by the financial misstatements
This benchmark has been introduced to ensure the financial strength of the Australian business
environment (Quesado, Aibar Guzmán and Lima Rodrigues, 2018). As per the market analysis,
the Australian finance ministry has approved that instrument in 2018.
Besides that, the regulations of the Australian tax office (ATO) and Australian Stock Exchange
(ASX) are also contemplated as the Australian Legislations relevant for financial management.
ASX indicates the regulations to operate financial activities in the Australian finance market. It
would ensure the integrity of the financial performance of the Company and it scares the
interests of investors. Through maintaining the ASX principles, the financial management of
Australian Companies will be capable of complying with the legislative requirements. ATO
regulations will help the Australian concerns to comply with Direct tax regulations, which are
required to increase the brand value.
International Financial Reporting Standards (IFRS) has been considered as the international
legislation that needs to be considered by the financial management of every business
organization. It allows the business organization to comply with global accounting principles.
Apart from that, financial management will be capable of preparing their financial reports in a
global format, which will be acceptable to the investors of any country using IFRS. Hence, it
could be recognized as a relevant international financial legislation for financial management.
According to the Australian financial enrollment, IFRS regulations have not been directly
implanted in business organizations (Williams and Dobelman, 2017). Its regulations are used as
the guidance of preparing the financial statements. Besides that, the format of preparing the
financial reports was also taken from the IFRS. However, the accounting entries are conducted
following the Australian Accounting Standard (AASB), which was prepared by considering the
IFRS principles.

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4. Requirements of the Australian Tax Office

Two types of tax regulations are available in Australia, such as direct tax and indirect tax. GST is
the only indirect tax, which is applied to consumable goods and services. On the other hand, the
direct tax is also known as income tax, as it applies to the income of a business organization or
any individual. In order to maintain the tax revenue, the Australian tax office has introduced the
GST, which applies to all the manufacturing organizations (Ishibashi et al. 2016). Their financial
management is responsible to add the GST while the last consumer of goods will pay pricing
their products and it. Against the payment of GST tax, manufacturing or sellers will be capable
of claiming Input Tax Credit.
TO control the entire tax collection procedure of Australia, thus, its regulations need to be
considered by all business organizations and Australian Residents. In the case of Income-tax,
Individuals are needed to pay tax on their annual income. A specific tax rate slab available for
them. However, the Company tax is collected differently, as the ATO has instructed the
companies to calculate the tax at 30%. This factor has differentiated company tax from other
income taxes. Without using the regulations of ATO, the Australian government will not be
capable of collecting tax revenue. Thus, ATO is highly required in the Australian financial
environment. On the other hand, the Company will be capable of calculating tax liabilities by
considering the ATO regulations, thus, it could be regarded as the advantages of using these
regulations.
PAYG is an Australian tax that applies to sole traders. It enables the business owners to pay the
income tax by using the regulations of individual tax slabs. In order to comply with the national
tax regulations, ATO provides clear guidance to the companies. As opined by Lemieux (2017),
without the assistance of ATO rules, the Australian government will not be capable of
maintaining the tax collection processes. Besides that, the Australian Companies will not be
capable of complying with complex tax regulations without the assistance of ATO. Hence, it is
considered a highly required financial authority of the Australian business environment.

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A2

1. Planning for financial management

a. In order to review the financial information company’s annual report will need to be taken into
consideration. The major reason is that, annual report of any Company contains the financial and
nonfinancial information, such as profit and loss reports and the cash flows. Each financial factor
has been discussed in different sections. Income statement explains the actual and profit and loss
of the Company and the cash flow statement reflects the flow of cash.
b. According to the available information about the Bang on bike, profit and loss statement of
the last four financial years, net profit margin was found to have increased gradually. In every
accounting term, the net profit was found to be increased every year. In order to determine the
reason for such an incremental trend, it was determined that the revenue structure of the
Company has been increased in every financial year with their COGS. However, the growth rate
of sales revenue was higher than the COGS growth structure (Aladejebi and Oladimeji, 2019).
Increment in sales revenue has been considered as the major reason for such growth trend in net
profit margin.
c. In order to make the financial budget, the business plan of the organization will need to be
taken into consideration. Based on the available information, organizational management has
estimated that the inflation might be increased to 4% and it will affect the financial performances
of Bang on Bike. Along with this, the management is also predicted to reduce the loan amount
by $150,000. The dates of implementing the budget will need to be identified and the additional
resources required to implement the budget will need to be identified. All the past financial
statements will be required to examine for determining the gaps in the business plan. Sales
budget must contain the financial elements required to resolve such identified gaps. Required
excess capital will also need to be added in the budget statement.
d. Analyzing cash flow trend requires the financial information of Company related to its cash
transaction. Based on the available information, the cash flow statement of Bang on Bike is not
available, thus, its cash flow trend could be calculated (Eling and Pankoke, 2016). However, the
management will require considering the cash flow statement of the last two accounting terms,
which helps in comparing both statements. This will result in the variations of cash flows. Hence,
cash flow trends will automatically be identified.

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e. As per the business plan of Bang on Bike Company, its statutory requirements have been
recorded in a separate document. Based on these requirements, the new budget structure should
include the superannuation at 9% of wages of employees. Payroll tax will need to be computed at
4.75% of total wages after considering the superannuation. Besides that, a workers compensation
will also need to be added at a rate of 2% of wages. At the end of all activities, Company tax will
need to be calculated at 30% per annum.
f. In order to ensure the accountability of financial performances, organizational management of
chosen Company is required to implement effective software (Song, Wang and Zhu, 2018). As
per the market analysis, Xero is considered as effective financial management software, which
could enhance the efficiency of accounting activities.

2. Preparing budget

Sales and profit budgets

PROFIT BUDGET 2016/17 Qtr 1 Qtr 2 Qtr 3 Qtr 4

Revenue 100% 15% 22% 28% 35%

Sales $19,000,0 $2,850,00 $ $ $

00.00 0.00 4,180,000. 5,320,000. 6,650,000.
00 00 00

– Cost of Goods $10,640,0 $1,596,00 $ $ $

Sold 00.00 0.00 2,340,800. 2,979,200. 3,724,000.
00 00 00

Gross Profit $ $1,254,00 $ $ $

8,360,000. 0.00 1,839,200. 2,340,800. 2,926,000.
00 00 00 00

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Gross Profit % 100% 15.00% 22.00% 28.00% 35.00%

Expenses

– Accounting Fees $ $ $ $ $
2,500.00 2,500.00 2,500.00 2,500.00
10,000.00

– Interest Expense $ $ $ $ $
22,000.00 22,000.00 22,000.00 22,000.00
88,000.00

– Bank Charges $ $ $ $ $
524.00 524.00 524.00 524.00
2,096.00

– Depreciation $ $ $ $ $
42,500.00 42,500.00 42,500.00 42,500.00
170,000.00

– Insurance $ $ $ $ $
3,500.00 3,500.00 3,500.00 3,500.00
14,000.00

– Store Supplies $ $ $ $ $
- - - - -

– Advertising $ $ $ $ $
50,600.00 50,600.00 50,600.00 50,600.00

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 202,400.00

– Cleaning $ $ $ $ $
5,500.00 5,500.00 5,500.00 5,500.00
22,000.00

– Repairs & $ $ $ $ $
Maintenance 16,500.00 16,500.00 16,500.00 16,500.00
66,000.00

– Rent $ $ $ $ $
2,535,148. 633,787.0 633,787.00 633,787.00 633,787.00
00 0

– Telephone $ $ $ $ $
3,600.00 3,600.00 3,600.00 3,600.00
14,400.00

– Electricity $ $ $ $ $
Expense 7,200.00 7,200.00 7,200.00 7,200.00
28,800.00

– Luxury Car Tax $ $ $ $ $

- - - - -

– Fringe Benefits $ $ $ $ $
Tax 7,000.00 7,000.00 7,000.00 7,000.00
28,000.00

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– Superannuation $ $ $ $ $
42,930.00 42,930.00 42,930.00 42,930.00
171,720.00

– Wages & Salaries $ $ $ $ $

1,908,000. 477,000.0 477,000.00 477,000.00 477,000.00
00 0

– Payroll Tax $ $ $ $ $
21,465.00 21,465.00 21,465.00
85,860.00 21,465.00

– Workers’ $ $ $ $ $
Compensation 9,540.00 9,540.00 9,540.00 9,540.00
38,160.00

Total Expenses $ $1,346,14 $ $ $

5,384,584. 6.00 1,346,146. 1,346,146. 1,346,146.
00 00 00 00

Net Profit (Before $ $ $ $ $

Tax) 2,975,416. (92,146.00 493,054.00 994,654.00 1,579,854.
00 ) 00

Income Tax $ $ $ $
298,396.20 473,956.20
920,268.60 147,916.20

Net Profit $ $ $ $ $

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 2,055,147. (92,146.00 345,137.80 696,257.80 1,105,897.
40 ) 80

Table 1: Sales budget of Bang on Bikes Pty Ltd.

In order to prepare a financial budget, all the past year information will need to be taken into
consideration. It means that the last year's income statement will need to be considered while
preparing the sales budget for the next accounting term. In the current scenario, the sales budget
was required to be prepared for 2016-17, thus, the financial information related to 2015-16 has
been used over here. As the incremental trend has been identified in last year's income statement,
thus, future sales budget will also need to be prepared by estimating the future growth rate.

3. Allocate funds

Fund allocation is considered as another major activity while making the business plan. The
major reason is that success of business objectives mainly depends on the effective allocation of
resources. As stated by Hamdan, Nordin and Khalid (2019), three types of resources are
available to every business organization, such as Physical resources, Human resources and the
financial resources. Financial resources are contemplated as capital funds. As the business
operations are highly dependent on the availability of capital funds, thus, allocation of funds
indicates the success of business. In the current scenario, financial management Bang on Bikes
pty ltd. has estimated allocation of monetary funds in the manufacturing department.
Manufacturing department is dealing with the production process, thus, physical and human
resources are mainly used in this department. It requires the highest capital fund allocation, as
the main business activities of the Company have been considered in the manufacturing
department. After that, the remaining fund will need to be allocated in selling and administrative
activities (Bilinski et al. 2017). Management is required to set an effective promotional strategy
to ensure the desired selling volume. By allocating capital funds in selling and administrative
expenses, management will be capable of securing their advertisement expenses. Along with
this, the payment of superannuation, payroll tax and workers’ compensation require a high
amount of capital. Thus, proper fund will also be allocated in these sections.
Proper utilization of financial resources will be ensured by analyzing the fund allocation
activities. In the current business plan, the fund will need to be allocated in accordance to the

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sales budget. As all the possible expenses are presented in this estimation, thus, will need to be
considered for allocating available financial resources.

4. Analyzing effectiveness of financial management

In terms of securing the reliability of financial performances, organizational management will be

required to control the financial management software. It means that the Xero will be
implemented as the accounting management software, however, it requires a regular observation
to track the possible misappropriations in financial records. Without checking the management
software, it would result in financial misstatements, as the managerial staff may manipulate the
financial transactions recorded in books of accounts. Thus, a proper reviewing process will need
to be implemented in financial management software (Ossa-Moreno, Smith and Mijic, 2017). As
the success of any business organization highly depends on the allocation of monetary funds,
thus, financial management is responsible to manage the risks of misappropriations of financial
resources. It will help the Company in detecting the risks and its possible impact on financial
position. Financial management of a Company is only responsible to record all accounting
transactions in the books of accounts, thus, reviewing the recording procedure could be regarded
as a major task for its management.
In respect to forming an effective management system, the accounting record system will need to
check in every interval. This process will assist the management i n managing the audit trail. It
means that financial records will need to be recorded in such a way, which will help the auditors
while conducting statutory audit. Management is also responsible for investigating the financial
activities of the internal business environment. The main factor is that, Due diligence will ensure
the effectiveness of financial performances (ifrs.org, 2020). Financial management of Bang on
Bikes are required to maintain due diligence in the business environment to ensure accountability
and integrity in financial activities.

5. Reporting on finance

a. International Financial Reporting Standard provides the global format of preparing the
financial statements. Thus, business organizations are required to comply with the IFRS
regulations while preparing the financial reports, like balance sheet, cash flow statement and

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income statement. Financial efficiency of any business organization has been reflected by the
accuracy of its financial reports (Ali, Frynas and Mahmood, 2017). By supervising the financial
report preparation activities management can initially ensure the appropriateness of financial
statements. After that, the financial report will need to be compared with the IFRS regulations to
approve its format as correct and accurate.
b. Last year’s financial statements will need to be compared with the current year financial
report, to determine the discrepancies. In case of identifying any regulatory variations, the
management will need to resolve that issue immediately for maintaining the audit trail. Besides
that, the significant issues in current financial statements will need to be identified. According to
the income statement of Bang on bikes, it was determined that its sales and cost of goods sold
has increased by 8%, in the last five years. It is not possible for a real life Company to maintain
the similar growth rate of sales without any fluctuation. Thus, it can be recognized as a major
issue in financial reports.
c. After considering the risks and possible misappropriations, financial management will need to
recommend the solutions. Based on financial statements of Bang on bikes pty ltd., it is
recommended to its management to revise their income statement, and it contains several
misstatements. Next year's sales budget reflects the real picture of the Company (Hapsoro and
Suryanto, 2017). During the 1st quarter, the Company is estimated to face a financial loss of
$92,146. In order to avoid such loss, management is recommended to reduce the cost structure
and enhance the sales.
d. Financial management has decided to pay 9% of total ages in the superannuation fund, which
reflects the financial effectiveness of the organization. The major reason is that it secures the
proper utilization of monetary resources and it ensures the CSR activities of the Company.

6. Implementing the budget

a. According to the business plan summary, it was determined that the financial management has
paid more attention to the Human resources management, as theory has decided to increase the
Workers compensation contribution and Superannuation. Current budget reflects the growing
trend in sales and net income, which was represented by the last year income statement
(Appelbaum et al. 2017). Thus, the manager has followed the similar incremental trend. Hence,
the managers and supervisors can be regarded as clear about the budget preparation process.

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b. In order to approve the financial budget, it is needed to ensure that no opportunities of
misappropriate allocation of monetary funds are available in this business plan. After that,
financial estimates need to be justified by the International financial regulation to check its
relevance and accuracy. All the cost elements of the current budget reflect the relevancies in the
business activities of Bang on Bikes pty ltd. Thus, record financial transactions can be regarded
as accurate and appropriate.
c. Before implementing a financial budget, its financial records need to be reviewed for
determining the accuracy of budget in the business environment. In the current scenario, Bang on
Bikes have operated the business activities with due diligence. All its financial reports have been
prepared through considering the IFRS regulations. Through reviewing its profit and loss
statement, it was determined that the sales and net profit has been increased in every accounting
(Nitzl and Chin, 2017). As per this new budget, it was evaluated that sales and net profit was also
estimated to be increased again in future financial terms. Thus, prepared budget is considered as
appropriate. As no financial issues were identified in past income statements, thus, more
additional funds have been introduced in the current sales budget. Only the superannuation
contribution, payroll tax contribution and worker’s compensation have been revised. These
figures are accurate in respect to the business plan.
d. Contingency is a well-known term for the financial plan, especially in preparing the budget.
As the budget statement is reflecting the possible income expenses of an organization, thus, a
contingency plan will need to be prepared with the budget statement. As no such financial risks
have been identified in blast four accounting terms, thus, it has been estimated that the future
financial activities will also not be affected by any misstatement. Hence, no contingency plan is
required in this business plan.
e. Sales budget also represents the allocation of funds, which are considered as appropriate in
accordance with the business requirements. Thus, financial management will agree with this fund
allocation process (Di Vaio and Varriale, 2018). However, at the end of this year, actual
performances will need to be compared with the agreed fund allocation to maintain the audit
trail.

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7. Requirements of ATO

According to the business description of Bang on Bikes Pty Ltd., a Company could not be
regarded as the sole trader organization. Thus, the Company will need to pay income tax in the
tax rate applied on the Company. All the business income generated from the business of Bang
on Bikes pty ltd. will be taxed at 30% (Company tax rate of ATO). As per the regulations of
Australian Tax Office, GST is also applied on the activities of chosen firms. The major reason is
that the Company is dealing with manufacturing activities and its annual turnover crossed the
minimum limit of $75,000. Thus, management will need to pay GST on the raw materials and
collect the GST from the customers. After that, they will be required to claim the Input Tax
Credit Based on ATO regulation (ato.gov.au, 2020). As the Company has conducted business
activities in the last few years and their annual turnover has already crossed the threshold limit of
$75,000. Thus, the management will need to examine the compliances with ATO regulations.

8. Contributing to financial instruments

Preparation of financial budget requires the appropriate financial estimation; an improper

financial estimation might be resulted in preparing sales budget. As the income, statements of the
last four years are reflecting the similar sales growth, which is not considered as a realistic factor.
Thus, the current budget has been prepared through estimating the higher growth rate in sales
and net profit margin. This is the only estimation made in budget preparation. According to the
budget plan, sales are estimated to be increased by 21% in next accounting term. Cost of goods
sold is also estimated to be increased with sales growth rate as it was in sales revenue. In
addition to all this, the net profit of the Company was estimated to be increased with higher
growth rate. These are the major estimations, which were taken into account in preparing the
sales budget.

A3

Question 1

Balance sheet is a major financial statement, which is used by financial analysts to determine the
financial condition of any business organization. According to the revised conceptual framework

23
of International Financial Reporting Standards, balance sheet has been considered as the
statement of financial position. The major treason is that, balance sheets of any business
organization enable the financial analysis or any user to determine the financial position of the
Company (Song, Wang and Zhu, 2018). Closing balances of each account balance have appeared
on the balance sheet. It enables the use of financial statements to determine the efficiency of
financial management and the financial transparency of business.

Question 2

Cash flow statements reflect the inflow and outflows of cash. Thus, the stakeholders for
determining the closing cash balances of concern have used cash flow statement. In any cases, if
the cash flow statement reflects cash outflows in investing, operating and financial activities,
then it will be recognized as the poor cash flow statement. Higher outflows in operating activities
in comparison to its inflows will result in poor cash performances of the Company. More
purchases of business assets will also result in poor cash flow reports. Reducing the fair value of
sold assets also affected the cash flow records.

Question 3

In order to secure the financial effectiveness of any business organization, its management is
required to monitor its business expenses. The main factor is that expenses are mainly affected
by the net income of any firm. Thus, monitoring business expenses will help the management to
reduce the cost structure and net income will be increased. Thus, it could be regarded as a major
advantage of monitoring expenditure. Besides that, it will help the management to reduce the
chances of material misstatement, like increasing the financial expenses. In addition to all this,
the expenditure monitoring process will help the management to stick into the budget structure.

Question 4

Transparency of financial performances varies in the effectiveness of financial record keeping

systems. By implementing new technology in the accounting record keeping process,
management could improve their accounting activities. It helps in monitoring the process of
budget and it is the major advantage of record keeping systems. Besides that, the financial

24
statement will automatically be prepared by this system also (Hamdan, Nordin and Khalid,
2019). Through adopting the record keeping system, the financial department could maintain the
audit trail. By using the information of this system, financial analysts could easily compare the
actual performances with budget structure, which represents the variations in cost. Thus all
business organizations are required to implement an advanced financial record keeping system.

Question 5

According to the market analysis, different types of programs are available for financial inputs.
Out of them, three programs have been considered as highly effective for any business
organization. It means that the financial management of the organizations are recommended to
implement these three financial input programs. MYOB, Xero and Quickbook are those effective
programs used in financial input.
MYOB: It helps in creating the financial reporting through the financial inputs.
Xero: This software is available in cloud computing systems. It requires it to be purchased from
the service providers. It also provides the financial reports based on the data provided as
financial inputs.
Quickbook: Different types of accounting processes are available in this program, which enables
the management in preparing the financial statements (Ossa-Moreno, Smith and Mijic, 2017).

Question 6

a. Gross profit
After reducing the net sales revenue of any business organization by idiots CIGS, Gross profit
has been calculated. It reflects the profitability strength of the Company. As the business
expenses are not deducted from the sales while calculating the GP, thus, it could not be regarded
as the final profit structure.
b. Net profit
After reducing the gross profit by all business and non-business expenses, net profit will need to
be calculated for a Company. It reflects the actual profitability structure of the organization; the
tax is applied on this net profit margin.
c. Stock turnover

25
It reflects the ability of the organization in increasing the production volume. Through
comparing the stickman turnover ratio, production efficiency of a Company can be identified.
Through using the COGS and inventory, this ratio has been computed by stakeholders in making
the financial decisions.

Question 7

a. In order to determine the financial condition of a Company, its financial information will need
to be converted into the accounting ratios, which reflects the economic efficiency in terms of
percentage. Thus, financial analysts could easily identify the financial condition by comparing
cruise percentages.
b. According to financial theories, ratio analysis requires a benchmark set by the financial
management of Company based on their past performances and their expectations (Aladejebi and
Oladimeji, 2019). The major reason is that, ratio could not explain the achievement of budgeted
structure, until competing with its benchmark.
c. Financial analysis will help the stakeholders in estimating the possible financial statement of
the Company in future accounting terms. Thus, it enables the investors in making effective
investment decisions.

Question 8

All the business expenses are considered as the liability of the organization. Those liabilities,
which are raised and mitigated in a single financial term, will be considered as the short-term
financial liability. These are considered while calculating the working capital. Company is
responsible to pay tax on the business income. That income tax expenses are considered as tax
liability. As the organization is liable to pay tax on business income at the rate of 30%, thus, such
amount of tax is contemplated as the tax liability.

Question 9

At the time of conducting an audit of a financial budget, auditor will need to gather information
about the business activities of client organization. It will help in estimating the possible budget
figures of the Company. Such estimation will help the auditor in evaluating the efficiency and

26
correctness of budget structure. Thus, acceptability of budget depends on the fulfillment of
estimation made by management and auditor (Eling and Pankoke, 2016). Estimating the possible
figures a clear observation of past three financial records, otherwise, the figures might have
resulted in wrong outcomes and it initiated the financial issues.

Question 10

After comparing the actual performances with the budgeted schedule, some variations will
definitely be identified in every organization. These variations have been classified in two parts,
such as Favorable variation and Unfavorable variation. These are the major elements, which
helps in describing the characteristics of each variable. Positive and negative variations are
considered as favorable and unfavorable variations respectively.

Question 11

Based on the accounting regulation, three major financial factors are need to be considered for
verifying the expenditures, such as:
● Income statement: Through analyzing the income statement, expenses of both business
and non-business activities could be identified by the management,
● Cash flow statement: Cash flow statement reflects the expenses actually paid by
management for operating business activities
● Balance sheet: It reflects the changes in value of assets and debts, which represents the
changes in non-cash expenses, like depreciation.

Question 12

In order to ensure the good position in negotiating the budget, the relevance of budget figures
will need to be analyzed in respect to the past year performances. It means that the cost manager
will need to provide the justification for each financial estimation to ensure the appropriateness
of budget (Ekpo et al. 2017). In addition to all this, the possible outcomes generated from a
budget will need to be justified for ensuring the accuracy of budget schedule.

27
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