1. Prepare a Sales budget for ‘Health is care’ Cafe situated in a Blacktown city hospital for 2016.
Health is care Cafe- Sales data for the year ended December 2015
| Product | Unit Sales | Selling Price ( $) | Sales Revenue( $) |
| Coffee | 345 | 300 | 1035 |
| Tea | 100 | 2.50 | 250 |
| Hot chocolate | 125 | 3.00 | 375 |
| Cold drinks | 100 | 2.00 | 200 |
| Iced donuts | 200 | 1.00 | 200 |
| Cakes | 300 | 2.00 | 600 |
| Total | 1170 | 2.27 | 2660 |
Analysis of the local market and a trend over the past two years was conducted. A demographic report has been produced and following information has been determined in setting the budget for 2016. It is estimated that the following would occur during that period:
i. Unit sales of coffee will increase by 10%
ii. Sales of tea will decline by 5% and
iii. Sales of iced donuts will increase by 120%
iv. The selling price of coffee needs to decrease to $2.50 to meet competitors pricing
v. Cakes prices need to fall to $1.80
2. a) What is GST and give an example showing GST calculation in your response.
b) John manufacturer’s goods. He bought goods for $120,000 and incurred expenses of $ 10,000. These manufactured goods were sold for $ 145,000.
GST rate is 10%. Calculate total selling price of goods (( including GST).
3. Discuss whether relevant personnel need to be involved in developing and monitoring of the budgets?
4. a) What is the importance of cash flow budget or report.
b) Cash flow projection
The following is a budget prepared by Roger’s Tree service for the 3 months ending 31 March.
| Jan | Feb | March | Total | |
| Inflows | $ | $ | $ | $ |
| Fees received | 42000 | 48000 | 36000 | 126000 |
| Outflows | ||||
| Wages | 12000 | 12500 | 10000 | 34500 |
| Office expenses | 2000 | 2200 | 1800 | 6000 |
| Equipment expenses | 1200 | 2600 | 1600 | 5400 |
| Motor vehicles expenses | 4800 | 5200 | 4600 | 14600 |
| Advertising | 3200 | 3600 | 2800 | 9600 |
| Other | 2800 | 3600 | 3000 | 9400 |
| Total expenses | 26000 | 29700 | 23800 | 79500 |
| Net inflow(outflow) | 16000 | 18300 | 12200 | 46500 |
The following assumptions ( use the march figures) are used to prepare the budget:
- fees are expected to rise by 12%
- wage will rise by 2%
- all other expense will rise by 4%
You are required to prepare a budget for April.
5. Define the following terms and give the examples where needed:
i. Budgets
ii. Profit and loss statement
iii. Contingency planning in financial planning
iv. Liabilities
v. Balance sheets
6. a) Explain the process of financial management.
b) List the relevant legislations and regulations that finance managers must be considered while developing and managing budgets. Explain at least 2 regulations/legislations.
7. Explain the steps of developing and managing a budget.
8. What methods would you use to monitor and manage finances within the organisation?
9. List down all possible records/documents/systems that should be reviewed and evaluated in the financial management process
10. a) Explain the details and functioning of existing financial record keeping system in your organisation or conduct a research and detail one of the financial record keeping system used in the organisation
b) As per the requirements of The Australian Taxation Office, List down the financial records you must keep and for how long for audit purposes.
Sales Budget for Health is Care Cafe in Blacktown City Hospital for 2016
1.
| 2016 | |||
| Particulars | Units | Selling price ($) | Sales Revenue ($) |
| Coffee | 379.5 | 2.5 | 948.75 |
| Tea | 95 | 2.5 | 237.5 |
| hot chocolate | 125 | 3 | 375 |
| Cold drinks | 100 | 2 | 200 |
| Iced donuts | 240 | 1 | 240 |
| cakes | 300 | 1.8 | 540 |
| Total | 1239.5 | 2.050221864 | 2541.25 |
2. a) The GST stands for Goods and Service tax. It applies on supply of goods and services in a comprehensive manner. The main objective of goods and service tax is to eliminate double taxation. GST will lead to beneficial impact to the GDP growth of the country. In other words, it will replace the existing multiple tax structures of central and state. The GST rate in Australia is 10%.
Comprehensive example is:
Suppose GST rate is 20%.
| Particulars | Without GST ($) | With GST ($) |
| Manufacturer to wholesaler | ||
| Cost of Production | 10000 | 10000 |
| Add: Profit margin | 2000 | 2000 |
| manufacturer price | 12000 | 12000 |
| Add: Excise duty @ 12% | 1440 | 0 |
| Total value (a) | 13440 | 12000 |
| Add: VAT @12.5% | 1680 | 0 |
| Add: CGST @ 10% | 0 | 1200 |
| Add: SGST @ 10% | 0 | 1200 |
| Invoice value | 15120 | 14400 |
| wholesaler to retailer | ||
| COG to wholesaler (a) | 13440 | 12000 |
| Add: profit margin 10% | 1344 | 1200 |
| Total value (b) | 14784 | 13200 |
| Add: VAT @12.5% | 1848 | 0 |
| Add: CGST @ 10% | 0 | 1320 |
| Add: SGST @ 10% | 0 | 1320 |
| Invoice value | 16632 | 15840 |
| Retailer to customer | ||
| COG to retailer (b) | 14784 | 13200 |
| Add: profit margin 10% | 1478.4 | 1320 |
| Total value (c) | 16262.4 | 14520 |
| Add: VAT @12.5% | 2032.8 | 0 |
| Add: CGST @ 10% | 0 | 1452 |
| Add: SGST @ 10% | 0 | 1452 |
| Total price to final consumer | 18295.2 | 17424 |
| Cost saving to customer | 871.2 | |
b)
| Calculation of Selling price including GST | |
| Particulars | Amount ($) |
| Purchase Cost | $ 120,000.00 |
| Add: Expenses | $ 10,000.00 |
| Total Cost | $ 130,000.00 |
| Add: Profit margin | $ 15,000.00 |
| Selling Price (excluding GST) | $ 145,000.00 |
| Add: CGST @ 5% | $ 7,250.00 |
| Add: SGST @ 5% | $ 7,250.00 |
| Selling Price (including GST) | $ 159,500.00 |
3. Yes, a relevant personnel needs to be involved in the monitoring and developing of budgets so that if any discrepancy is found it can be corrected by that relevant personnel. Further, at regular intervals actual income and expenses will be compared with the budgeted figures in order to know whether the actual is in tune with budgets and if not finding the reasons for such deviations.
4. a) Budgets are very important for smooth functioning of business because it allows planning future policies and targets. The cash flow budget is an estimation of cash inflows and outflows. The importance of cash flow budget are as follows:
- The cash flow budget is also important as it involves the quick review as regards the performance of the business.
- By preparing cash budget, a company can expect when a cash deficit might arise and how much the shortfall.
- Preparation of cash flow budget highlights probable incomes and deficits for the budget period.
- Cash budget will determine the requirement of the company to meet future commitments and corrective actions can be taken if budgeted figures do not match with actual amounts.
- It will demonstrate the company’s financial performance to internal and external stakeholders.
b. Budget for April:
| Budget for the month of April | |
| Particulars | Amount ($) |
| Inflows | |
| Fees received | 40320 |
| Outflows | |
| Wages | 10200 |
| Office Expenses | 1872 |
| Equipment Expenses | 1664 |
| Motor vehicles expenses | 4784 |
| Advertising | 2912 |
| Other | 3120 |
| Total Expenses | 24552 |
| Net inflow/(outflow) | 15768 |
5. i. Budget means the statement of the financial position of a company for a fixed period based on the anticipations of incomes and expenditures during that period. Budgets is prepared in order to achieve the objectives and also for analyzing the performance of the company.
ii. Profit and Loss statement is a financial statement that includes revenues, expenses and costs produced by the company over a reporting period. Profit and loss statement is also known as income statement.
iii. A contingency is an unpredicted situation which affects the financial strength or market value of a company. It is a plan which is usually linked with negative event. Some examples of creating contingency plans are: security of assets, business continuity, restructuring etc.
iv. Liabilities are the company’s obligations that occur during the business operations. In other words, liabilities are the present obligations arising from past events that the company is indebted to other party.
v. Balance sheet is a statement of financial position which summarizes assets, liabilities and stockholder’s equity at a specified point of time.
6. a) A process by which expenditures incurred are recognized, accepted and paid is called as financial management process. Expenditures such as: material expense (like: water, consumables, stationary etc.), Equipment expense (like: building, furniture, computers, vehicles etc.), supervision expense (legal and accounting fees etc.). This process provides the system for supervising and controlling the actual financials against the budgeted.
b. The list of relevant legislations are as follows:
i. Financial Management Act: This act provides the framework and policies for managing the budgets.
ii. PGPA Act: This act requires to prepare budget estimations by the finance managers according to the directions issued by Finance Secretary.
7. There are 10 steps of managing and developing a budget:
What is GST and how to calculate it
i. Strategic plan is the first step in the budgeting process. This step explains about “how” the company uses its resources to achieve the mission.
ii. Second step is business goals of the company. This step will explain the steps to implement the previous step that is strategic plan.
iii. Projection of revenue is the 3rd Projections are based on past performance as well as estimated income growth.
iv. Projecting a fixed cost is a 4thstep in developing a budget because budget estimates the costs which remain unchanged. For example: utility costs, rent expenses, insurance costs etc.
v. Variable costs are those costs which changes with the change in level of production. These costs should be estimated and controlled.
vi. Goal expenses should also be estimated. For example, if the department of revenue has a goal of increasing revenue by 15% then the cost related with the revenue should also be included in the budget.
vii. Every company should aim the profit margin because it indicates the financial strength of the company.
viii. BOD or the owner should continuously grant the budget and also must observe the financial statement in order to observe the performance of the budget.
ix. 9thstep is to review the budget in regular intervals in order to make correction or modification in the budget if required.
x. Last but not the least, budget variances should be assessed by the respective manager and queries should be raised about the causes of such variances.
Thus, good budgeting process develops the company and also improves the financial health of the company.
8. The methods for managing the finances are as follows:
i. Use the right procedures to observe actual expenses and to manage costs through approval processes, delegations, reporting etc.
ii. Choosing cost analysis methods in order to identify deviations in costs.
iii. Keep records of cost management plans.
iv. Accounting of payment summaries and also files and documents.
v. Monitor the decisions that vary with the budget and amend them in order to achieve the overall objectives.
9. Below are the documents:
- A cash book which records payments and receipts
- Bank statements
- Employment records
- Expense records such as documentation, salary details etc.
- Sales records
- Details of stock in hand
- Agreement details such as rent agreements, lease agreements etc.
- Details of creditors and debtors.
10. a) Existing financial record book keeping system in the organization is Electronic record keeping. It simplifies to capture financial information, produce meaningful reports and meet tax and legal requirements very easily. Electronic method of keeping books is very efficient because it requires very less storage capacity. Further it allows to regular back up of records and keeps them in a safe place in case of disasters.
b) The following financial records are required to keep for five years for audit purpose (Australian Government, 2017):
i. Record of income and sales transactions including invoices, receipt books and records of sales in cash.
ii. Recording of all business expenses including purchases in cash. These include receipts of cheque book, credit card receipts, tax payments records etc.
iii. Year end records such as list of creditors and debtors. These include stock sheets, capital gain records etc.
iv. Bank statements. These include deposit slips, credit card statements etc.
v. Rental agreements, lease agreements etc.
vi. Loan statements.
References
Australian Government, 2017, “Business records you need to keep”, viewed on 10 July 2017 from https://www.ato.gov.au/General/Other-languages/In-detail/Information-in-other-languages/Record-keeping-for-small-businesses/?page=2#Record_keeping_evaluation_tool.