BSB FIM 601

BUDGET (PREPARATION & MONITORING)

Submitted by:

Date:

College Name:

STUDENT NAME: College Name

Table of Contents
Assessment Task 1 .............................................................................................................. 3
Sales and profit budgets .................................................................................................................................... 3
GST Cash flow budget ........................................................................................................................................ 3
Aged debtors ...................................................................................................................................................... 4
Budget Notes ..................................................................................................................................................... 4
Questions ........................................................................................................................................................... 6

Assessment Task 2 .............................................................................................................. 9

Variance Report ................................................................................................................................................. 9
Aged Debtor’s Ratio ......................................................................................................................................... 10
Evaluation ........................................................................................................................................................ 10

STUDENT NAME: College Name

Assessment Task 1

Sales and profit budgets

PROF IT BUDGET 2 0 1 1 /1 2 Qtr 1 Qtr 2 Qtr 3 Qtr 4
Revenue 20% 24% 26% 30%
Sales 16,971,236.64 3,394,247.76 4,073,096.88 4,412,521.44 5,091,370.56
– Cost of Goods Sold 9,673,604.37 1,934,721.12 2,321,665.10 2,515,137.09 2,902,081.06
Gross Profit 7,297,632.27 1,459,526.64 1,751,431.78 1,897,384.35 2,189,289.50
Gross Profit % 43% 43% 43% 43% 43%
Expenses
– Accounting Fees 40,000.00 10,000.00 10,000.00 10,000.00 10,000.00
– Interest Expense 84,508.00 21,127.00 21,127.00 21,127.00 21,127.00
– Bank Charges 1,600.00 400.00 400.00 400.00 400.00
– Depreciation 170,000.00 42,500.00 42,500.00 42,500.00 42,500.00
– Insurance 13,390.00 3,347.50 3,347.50 3,347.50 3,347.50
– Store Supplies 3,749.20 749.84 899.81 974.79 1,124.76
– Advertising 350,000.00 200,000.00 50,000.00 50,000.00 50,000.00
– Cleaning 16,282.24 3,256.45 3,907.74 4,233.38 4,884.67
– Repairs & Maintenance 64,272.00 16,068.00 16,068.00 16,068.00 16,068.00
– Rent 2,640,508.00 660,127.00 660,127.00 660,127.00 660,127.00
– Telephone 14,996.80 2,999.36 3,599.23 3,899.17 4,499.04
– Electricity Expense 26,780.00 5,356.00 6,427.20 6,962.80 8,034.00
– Luxury Car Tax 12,000.00 12,000.00
– Fringe Benefits Tax 28,000.00 7,000.00 7,000.00 7,000.00 7,000.00
– Superannuation 187,020.00 37,404.00 44,884.80 48,625.20 56,106.00
– Wages & Salaries 2,078,000.00 415,600.05 498,720.01 540,279.99 623,399.95
– Payroll Tax 98,705.00 19,741.00 23,689.20 25,663.30 29,611.50
– Workers’ Compensation 41,560.00 8,312.00 9,974.40 10,805.60 12,468.00
Total Expenses 5,871,371.24 1,465,988.21 1,402,671.89 1,452,013.73 1,550,697.41
Net Profit (Before Tax) 1,426,261.03 - 6,461.57 348,759.89 445,370.62 638,592.09
Income Tax 429,816.78 - 104,627.97 133,611.19 191,577.63
Net Profit 996,444.25 - 6,461.57 244,131.92 311,759.44 447,014.46

GST Cash flow budget

C ASH FLOW AN ALYSIS – GST 2011/12 Qtr 1 Qtr 2 Qtr 3 Qtr 4
GST Collected 1,697,123.66 339,424.78 407,309.69 441,252.14 509,137.06
Less GST Paid -1,293,218.81 -292,523.07 -307,604.16 -327,074.97 -366,016.60
GST Payable 403,904.86 46,901.70 99,705.53 114,177.17 143,120.45

STUDENT NAME: College Name

Aged debtors
AGED DEBTORS BUDGET TOTAL Qtr 1 Qtr 2 Qtr 3 Qtr 4
Sales 16,971,236.64 3,394,247.76 4,073,096.88 4,412,521.44 5,091,370.56
% Debtors Sales 20% 20% 20% 20%
Total Debtors 678,849.55 814,619.38 882,504.29 1,018,274.11
Current 4% 135,769.91 162,923.88 176,500.86 203,654.82
30 Days 10% 339,424.78 407,309.69 441,252.14 509,137.06
60 Days 5% 169,712.39 203,654.84 220,626.07 254,568.53
90 Days 1% 33,942.48 40,730.97 44,125.21 50,913.71

Budget Notes

i. Profits and losses in the previous years manifests a steady increase as sales were also
constantly increasing throughout the years with the efforts and excellence done by the
entire team both in operations and administration.
ii. Houzit Pty Ltd manages its finances effectively as it properly monitor and control its
actual expenses in line with the budget.
iii. Assumptions for the budget creation includes:
o The anticipation that the coming financial year would maintain the same sales growth
as the growth that took place between 2007/08 to 2010/11.
o The overall sales for 2011/12 target set by the business plan should be apportioned
across the quarters in the same % as was achieved in 2010/11.
This was:

Qtr 1 Qtr 2 Qtr 3 Qtr 4 2010/11

3,142,822 3,771,386 4,085,668 4,714,232 15,714,108

o Reduce the expected gross profit rate by 1% on the 2010/11 result in the hope that
lower prices on the products would help maintain the sales growth even in difficult
trading conditions.

o Cost of goods sold is the inverse of the gross profit rate determined by the business plan
and is determined by the quarterly sales budget.

STUDENT NAME: College Name

 o Accounting fees have been negotiated for the year at a fixed amount of $10,000 to be
paid in equal amounts each quarter.
o The interest charges on the bank loan are anticipated at a reduced amount of $84,508
due to an agreed repayment of some of the loan principal. This is to be paid in equal
amounts each quarter.
o Bank charges are expected to be the same as 2011 and paid in equal amounts each
quarter.
o Depreciation is expected to be the same as 2011 and allocated in equal amounts each
quarter.
o Increase the advertising budget by $70,000 over the 2010/11 results in the hope that
Houzit can secure a greater market share in a constricting market. $200,000 is planned
for the first quarter with the balance apportioned equally over the following three
quarters.
o Budget for an increase in inflation to 4% per annum from 2010/11 and that all costs
subject to inflation should incorporate this increase to the following:

 Insurance – apportioned in equal amounts each quarter.

 Store supplies – is calculated for to each quarter using the same % as
determined by the sales for each quarter. Celina has requested that a new
expense (store supplies) be recognized in the new budget that was previously
included in with the cleaning expense amounts. Store supplies in the 2009/10
results was $3,500 of the cleaning expense and $3,605 of the 2010/11 result.
 Cleaning – is calculated for each quarter using the same % as determined by the
sales for each quarter.
 Repairs and maintenance – apportioned in equal amounts each quarter.
 Rent – apportioned in equal amounts each quarter.
 Telephone – is calculated for to each quarter using the same % as determined
by the sales for each quarter.
 Electricity – is calculated for to each quarter using the same % as determined by
the sales for each quarter.
o A new car costing $97,466 including GST has been planned for in the coming period to
replace the five-year-old vehicle currently used by the chairman. This fuel inefficient car
will attract a luxury car tax.

o Fringe benefits tax is expected to be the same as 2011 and paid in equal amounts each
quarter.

STUDENT NAME: College Name

 o Increase wages and salaries by $172,500 over the 2010/11 amounts in the hope that
allowing the existing high number of casual staff to earn commissions on sales that
should help to maintain Houzit’s sales growth.

o The statutory requirements are:

 superannuation is 9% of wages and salaries for each quarter

 payroll tax is 4.75% of wages and salaries for each quarter

 workers compensation is 2% of wages and salaries for each quarter

o company tax is 30% of net profit before tax for each quarter.

iv. Other relevant information in preparing the budget includes:

o Sales breakup over the departments is anticipated to be bathroom fittings 30%,

bedroom fittings 25%, mirrors 15% and decorative items 10% together with the recently
added lighting fixtures 20%.

o Reduction on the principle of the loan by a payment of $100,000 on the 31 December

2011 from the profits generated by the business.

o One objective in this plan is to manage the debtors more efficiently in the current
period. This will involve an analysis of the debtors to identify ways to reduce the amount
of cash tied up in outstanding debtors.

Questions
1. Identify the current statutory requirements for tax compliance and list and calculate the tax
liabilities for Houzit Pty Ltd under taxation legislation.
Houzit Pty Ltd has the following tax compliance:
 Income Tax – computed at 30% of Net Profit before Tax
 Gross Sales Tax – remitted at 10% of Sales net of Cost and Expenses or even asset
acquisitions subject also to the same tax rate
 Luxury Car Tax – computed as Purchase Price inclusive of Gross Sales Tax in excess
of the said threshold at $57,466 divided by 110% to remove GST times 33% tax
rate.

STUDENT NAME: College Name

2. Identify the current compliance requirements and liabilities for this organisation under the
Corporations Act 2001.
The current compliance requirements under the Corporation Act 2001 are:
 For preparers of financial reports: Understand the applicable financial reporting
requirements, how to apply for relief from financial reporting requirements and
learn more about ASIC's Financial Reporting Surveillance Program.
 For company auditors: Understand auditors' compliance and document lodgement
obligations, access the auditor portal and learn more about ASIC's Audit Inspection
and Surveillance Programs. Also visit here for information about whistleblowing.
 For SMSF auditors: For auditors and prospective auditors who wish to audit self-
managed superannuation funds (SMSFs).
 For directors: Financial reporting responsibilities of directors.
 For users of financial reports: General information about financial reporting and
auditing requirements for investors, shareholders and other users of financial
reports.
 Liaison: Learn more about ASIC's financial reporting and auditing liaison activities.
 Resources: Provides access to the applicable legislation regarding the financial
reporting and auditing requirements, professional standards, regulatory documents
and useful contact information.

3. Review commercially available financial management software to select the most suitable software
for Houzit Pty Ltd.
Ensure you diagnose software options by comparing two commercially available software titles
against the capabilities of the existing technology for the organisation and against the prioritised
requirements, and outline the reasons that lead you to this recommendation.

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STUDENT NAME: College Name

4. Explain how you can apply the following principles of accounting in developing the budgets
required for this task:
a. matching principle
b. account groups
c. time periods.
a. Matching Principle – guides into the idea that there is no gain if there is no pain, so one
must effectively budget each cost to attain its desired revenue

b. Account Groups – helps a detailed description for each cost and follow an accounting
structure for presentation.

c. Time Periods – classifies cost based on occurrence, that helps develop budget to be more
specific as to which time of the year must it occur.

5. Explain and discuss the implications of probity when preparing and revising budgets.
Budgets are indicators to manage our finances properly, that heeds the attention when not
meet so as to identify reasons for the variances. A financial control tool to forecast the
future expenditures and sales of the company based on wise assumptions.

6. List the critical dates and initiatives that will require or generate resources for Houzit Pty Ltd in the
next financial cycle.
 Date after purchase of luxury car
 Date after payment of loan

7. List the items you would recommend for inclusion in the budgets for Houzit Pty Ltd.
 Water Utility Expense
 Meal Expense
 Transportation Expense

8. List the new or modified internal controls that could improve risk management for Houzit Pty Ltd
including the maintenance of audit trails.

 Introduction to a new comprehensive accounting system

 Creation of internal audit team

STUDENT NAME: College Name

Assessment Task 2

Variance Report
Houzit Pty Ltd
Variance to Budget
1st Quarter ended Mar-2012
$
Actual Results Budget-Q1 Actual-Q1 % Variance F or U
Variance
Sales 3,394,247.76 3,371,200.00 -23,047.76 -1% U
– Cost Of Goods Sold 1,934,721.12 1,955,296.00 -20,574.88 -1% U
Gross Profit 1,459,526.64 1,415,904.00 -43,622.64 -3% U
Gross Profit % 43% 42% -1% -2% U
Expenses
– Accounting Fees 10,000.00 2,500.00 7,500.00 75% F
– Interest Expense 21,127.00 28,150.00 -7,023.00 -33% U
– Bank Charges 400.00 380.00 20.00 5% F
– Depreciation 42,500.00 42,500.00 0.00 0% U
– Insurance 3,347.50 3,348.00 -0.50 0% U
– Store Supplies 749.84 790.00 -40.16 -5% U
– Advertising 200,000.00 150,000.00 50,000.00 25% F
– Cleaning 3,256.45 3,325.00 -68.55 -2% U
– Repairs & Maintenance 16,068.00 16,150.00 -82.00 -1% U
– Rent 660,127.00 660,127.00 0.00 0% U
– Telephone 2,999.36 3,100.00 -100.64 -3% U
– Electricity Expense 5,356.00 5,245.00 111.00 2% F
– Luxury Car Tax 12,000.00 12,000.00 0.00 0% U
– Fringe Benefits Tax 7,000.00 7,000.00 0.00 0% U
– Superannuation 37,404.00 37,404.00 0.00 0% F
– Wages & Salaries 415,600.05 410,500.00 5,100.05 1% F
– Payroll Tax 19,741.00 19,741.00 0.00 0% F
– Workers’ Compensation 8,312.00 8,312.00 0.00 0% F
Total Expenses 1,465,988.21 1,410,572.00 55,416.21 4% F
Net Profit (Before Tax) -6,461.57 5,332.00 11,793.57 183% F
Income Tax 0.00 1,600.00 -1,600.00 -160000% U
Net Profit -6,461.57 3,732.00 10,193.57 158% F

STUDENT NAME: College Name

Aged Debtor’s Ratio
2 0 0 9 /1 0 2 0 1 0 /1 1 2 0 1 1 /1 2

Trade Debtors 850,000.00 975,000.00 1,118,382.35

Sales 14,550,100.00 15,714,108.00 16,971,236.64
Debtor Days 21 days 23 days 24 days

Evaluation
Houzit Pty Ltd is a 15-store retail chain located in Brisbane, and is the leading homewares retailer,
catering the growing needs for furnishing new and renovated dwellings in the area. The assortment on
offer of bathroom fittings, bedroom fittings, mirrors and decorative items together with the recently
added lighting fixtures has positioned Houzit as a leader in homewares retailing in Australia.

The current accounting information system has not adequately provided sufficient analysis of revenue
and expenditure and has made it difficult to make informed estimates of future profits. Thus, they want
to upgrade their existing accounting system which will manage the company accounts more efficiently
in the long run.

With the anticipation to improve the system, the manager was task to prepare an annual budget and
will be broken down over four quarters. It was forecasted that sales growth remains the same, an
increase in inflation to 4%, purchase of new car for the Chairman, reduction of principal loan, increase
in advertising and wages. A detail of last year’s actual sales and expenses were provided by the
accountant to identify other items up for budget.

Houzit develop a standard process for preparing the budget by (1) establishing the objective, (2) gather
prior period data, (3) discuss prior period information and anticipated changes in the budget period with
stakeholders, (4) research relevant external information, (5) incorporate identified trends to determine
assumptions and parameters, (6) prepare budgets in standard formats, and lastly (7) submit budgets for
approval. But after preparation, it must be identified the variances of actual cost versus the budget
made, so as to investigate any variances arising such comparison.

Soon after the first quarter ended, actual results came and a comparison report to such with the budget
will be presented. It was then identified that an external factor affected the outcome in which banks
are raising interest rates in line with the increased upward international pressure and Houzit has a
significant part of their loan funds on a variable interest rate which changes directly with market
conditions. But behind it, the sales are reasonably holding up and expected to grow in the next couple
of quarter.

STUDENT NAME: College Name