a)Review and complete the cash budget for 6 months to June. In preparing the budget we will have to calculate PAYG tax instalment in line with the very latest assessment of tax (i.e. the latest notional tax figure).

Cash Budget for 6 months to June

ITEM

JAN.

$000's

FEB

$000's

MAR

$000's

APR

$000's

MAY

$000's

JUN

$000's

Total

$000's

Sales (all cash)

21

26

21

17

20

20

Other income

2

0

2

0

2

0

TOTAL

Purchases (all Cash)

10

8

8

7

8

6

Utilities (Teleph etc)

4

3

3

3

4

5

Accounting fees

0

6

0

0

2

0

Rates

0

0

0

16

0

0

Insurance

13

0

0

0

7

0

Motor veh running expenses

3

3

3

3

3

3

Tax

Sundry

0

0

2

1

1

1

TOTAL

Increase (dec) in cash

Balance beginning

10

Balance end

b)Complete the quarterly cash budget for 12 months to the end of December, showing the last three months by month.

Cash Budget:

ITEM

Ist QTR.

$000's

2^ndQTR

$000's

3^rdQTR

$000's

OCT

$000's

NOV

$000's

DEC

$000's

4^thQTR

$000's

Total

$000's

Sales (all cash)

68

57

60

20

19

30

69

254

Other income

4

2

5

2

1

2

5

16

TOTAL

Purchases (all Cash)

26

21

22

8

12

9

29

98

Utilities (Teleph etc)

10

12

11

5

5

4

14

47

Accounting fees

6

2

3

3

0

0

3

14

Rates

0

16

0

0

4

0

4

20

Insurance

13

7

0

4

0

0

4

24

Motor veh running expenses

9

9

9

3

3

3

9

36

Tax

5

7.5

14.5

7.5

0

0

7.5

34.5

Sundry

2

3

4

1

0

2

3

12

TOTAL

Increase (dec) in cash

Balance beginning

10

11

Balance end

11

Note the tax for the quarter of June is made up of two amounts $7,000 for franking deficit tax (FDT) and $7,500 for the normal PAYG tax instalment. You should comment on the reason why this change in tax amounts is increased.

c)Prepare a variance report for the 12 months to December

ITEM

Total

Budgeted

$000's

Total

Actual cash

$000,s

Variance

$000's

Variance

Favourable

unfavourable

Sales (all cash)

254

256

Other income

16

17

TOTAL

Purchases (all Cash)

98

99

Utilities (Teleph etc)

47

46

Accounting fees

14

15

Rates

20

20

Insurance

24

22

Motor veh running expenses

36

39

Tax

34.5

36.6

Sundry

12

10

TOTAL

d)Comment on the tax expense of $36,600, given you are told that there was a $3,000 excessive overfranking penalty. State why it is not necessarily an error. How can the company adjust their strategy/ies of paying dividends to shareholders, to prevent a recurrence of what happened in the past year? Consider any personnel the organisation may care to appoint.

e)The directors have proposed a Board meeting for next Monday, and they have asked you to come and report on the performance of their tax plans.

Monitor the tax plans that were put in place including all changes and amendments made as a result of tax implications and other influencing factors.

Write a report to the directors of the company outlining your findings. Your findings must include the following information:

Tax plan they sought to implement (i.e. Including details of the 3 changes to tax obligations, e.g. PAYG tax instalments)

The implementation and monitoring of that plan (including any management processes used (e.g. internal controls, budgetary controls etc.)

The results of the year, particularly their variance for tax expense; what caused it, and how it can be better monitored or controlled into the future.