financial analysis report that will assist you in developing and implementing financial budgets for the next financial year 2020/21. The Financial report must include all the following information:
a)Financial analysis of the past two financial years' data. This must include:
- Profitability ratio (Gross profit margin, Net profit margin, Operating profit margin)
- Current ratio
- Debtor ageing
BSBFIM601 - Skill Assessment Appendix 1 - Business Scenario NIT AUSTRALIA ducation for brighter futures You have recently been appointed as the business manager of Houzit Pty Ltd having been a store manager for the past three years. Houzit Pty Ltd is a 15 store retail chain located in Brisbane. Houzit is the leading homewares retailer, catering to the growing need for furnishing new and renovated dwellings in the greater Brisbane 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. Houzit has grown over the past five years from a single store to the current chain. Houzit prides itself on superior after sales service which has been a key reason for the continued growth in sales and corresponding profit increases. Today Houzit employs over 150 staff. Houzit Pty Ltd is a proprietary limited company (ACN 34 765 234 02) registered with the Australian Securities and Investment Commission (ASIC). The registered address is with Houzit's solicitors (Langs Lawyers, 535 Queen Street, Brisbane, QLD 4000) and the principle place of business is 505 Boundary Street Spring Hill Brisbane QLD 4000. Computer software requirement 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. Estimates have relied on the 'gut feel' of the experienced traders on the board and of the senior managers. The board sees the need to apply more analysis to past results that they believe could be done with the introduction of state-of-the-art computer software. Houzit Pty Ltd wants to upgrade their existing accounting system which will manage the company accounts more efficiently in the long run. They request that the new system you recommend to them to be compliant with all legislative and statutory requirements for small to medium businesses. None of Houzit's products are GST free however the accounting information system records the GST collected as well as the input tax credits earned on the purchases of stock and assets. These amounts are reported and paid in accordance with the business activity statement (BAS) schedule determined by the Australian Tax Office They have 100 fulltime and 50 part-time staff, but only 10 of the staff will have or need access to the financial system. Some staff are paid on a salary sacrifice arrangement that attracts fringe benefits tax. Houzit is anticipating that within five years they will have over 250 full-time staff, and at least 20 staff will require access to the financial system by then. The management requires a financial system software that is license or subscription based without any upfront huge implementation costs. The plan is to keep using this subscription based software as the organisation continues to grow. BSBFIM601 - Skill Assessment Appendix 1 Version: 2.1 -[24 - Aug - 2020] - Published Page 1 of 12BSBFIM601 - Skill Assessment Appendix 1 - Business Scenario NIT ducation for brighter futures The payroll system deducts withholding tax from the employees and remits this along with the firm's pay as you go (PAYG) instalment each quarter as reported on the firm's business activity statement. Income tax return for the company and its annual statement is completed by the firm's accountant. Taxes and fees due are paid by the due dates. Houzit have just upgraded their computers and have five new desktop PCs which will be used by the finance staff. They are current (for 2019) specification machines with i7 CPUs and 8Gb RAM each, and all have Windows 10 Professional and Norton's 360 installed with the professional version of Microsoft Office 2016 as well. Other staff will use their machines at various times, so it is important that the software requires a login to access data and that data stored by the software cannot be accessed in any other way. Corporate Details Board members CEO Accountant Stores Business manager manager Accounts receivable Accounts payable Jim Schneider, the CEO, has asked you to prepare some financial budgets for the 2020/21 financial year as a preliminary overview of the financial year ahead. He asked you to first prepare a 12 months budget and then break it up over the four quarters. The areas he is particularly interested in seeing is: 1. Sales budget for 2020/21 by department by quarter. 2. Profit budget (including detailed expenses) for 2020/21 by quarter. BSBFIM601 - Skill Assessment Appendix 1 Version: 2.1 - [24 - Aug - 2020] - Published Page 2 of 12BSBFIM601 Skill Assessment Appendix 1 Business Scenario III\" II, NIT AUHSTRALIMA \"gm. .m 3. The cash ow result per quarter of the GST after adjusting the GST collected by the allowable GST tax credits. 4. The anticipated aged debtors summary at the end of each quarter. The CEO wants to be given all the budgets except for the aged debtors budget which the accountant and accounts receivable clerk can monitor. The CEO produced a summary of the nancial information from Houzit's current business plan that covered the budget year to highlight some of the key goals, objectives and strategies he would like incorporated into the budget. Financial Summary from Houzit Business plan 1. The anticipation that the coming nancial year would maintain the same sales growth as the growth that took place between 2018/19 to 2019/20. 2. To budget for an increase in ination to 4% per annum and that all costs subject to ination should incorporate this particular increase. 3. A new car costing $30,466 excluding GST has been planned for in the coming period to replace the fiveyearold vehicle currently used by the CEO. 4. 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%. 5. Prots are to be built on securing a growing customer base which will generate loyalty sales and become the refer other customers to the organisation. The superior aftersales service is the key strategy to achieve this. 6. Reduction on the principle of the loan by a payment of $100,000 on the 31 December 2020 from the prots generated by the business. 7. One objective in this plan is to manage the debtors more efciently 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. 8. The expectation that 2020/21 would be a difficult trading year but that the budget net profit should target the same result as achieved in the 2019/20. The strategy to achieve this in the business plan included three key elements: a. To reduce the expected gross profit rate by 1% on the 2019/20 result in the hope that lower prices on the products would help maintain the sales growth even in difcult trading conditions. b. To increase the advertising budget by $70,000 over the 2019/20 results in the hope that Houzit can secure a greater market share in a constricting market. $200,000 is planned BSBF1M601 Skill Assessment Appendix 1 Version: 2.1 [24 Aug - 2020] Published Page 3 of 12 BSBFIM601 Skill Assessment Appendix 1 Business Scenario III\" II, NIT AUSTRALIA Eauunnn lnr nllglnal rm... for the first quarter with the balance apportioned equally over the following three quarters. c. To increase wages and salaries by $172,500 over the 2019/20 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. Aer going through the business plan summary, the CEO gave you the previous year's nancial reports and asked you to speak with the aCCOuntant Celina Patel to get some of the gures and detailed expectations for the coming year. You arrange a meeting with Celina Patel, Houzit's accountant, and she gives you the following insight into the historical expense relationships and the current statutory compliance liabilities. Sales and profit budget information Celina explained that the only budget she monitors on a day-to-day basis is the cash ow budget and the store manager is primarily responsible for the sales budget. These are the notes you take at the meeting: 0 The overall sales for 2020/21 target set by the business plan should be apportioned across the quarters in the same % as was achieved in 2019/20. This was: Qtr 1 Qtr 2 ' Qtr 3 Qtr 4 2019/20 3,142,822 3,771,386' 4,085,668 4,714,232 15,714,108 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. 0 Accounting fees have been negotiated for the year at a fixed amount of $10,000 to be paid in equal amounts each quarter. 0 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. a Bank charges are expected to be the same as 2019/20 and paid in equal amounts each quarter. - Celina has requested that a new expense (store supplies) be recognised in the new budget that was previously included in with the cleaning expense amounts. Store BSBFIM601 Skill Assessment Appendix 1 Version: 2.1 [24 Aug - 2020] Published Page 4 of 12 BSBFIM601 Skill Assessment Appendix 1 Business Scenario III\" II' NIT AUSTRALIA Eauunnn lnr angina mum supplies in the 2018/19 results was $3,500 of the cleaning expense and $3,605 of the 2019/20 result. Cleaning expense will then be lower but identify the real labour costs involved in the cleaning expense. 0 Depreciation is expected to be the same as 2019/20 and allocated in equal amounts each quarter. a Advertising is to be apportioned to each quarter based on the business plan. 0 The following expenses are expected to increase by the determined ination rate in the business plan summary: 0 Insurance apportioned in equal amounts each quarter. 0 Store supplies is calculated for to each quarter using the same % as determined by the sales for each quarter. 0 Cleaning 7 is calculated for each quarter using the same % as determined by the sales for each quarter. 0 Repairs and maintenance apportioned in equal amounts each quarter. 0 Rent apportioned in equal amounts each quarter. 0 Telephone is calculated for to each quarter using the same % as determined by the sales for each quarter. 0 Electricity is calculated for to each quarter using the same % as determined by the sales for each quarter. 0 Fringe benefits tax is expected to be the same as 2019/20 and paid in equal amounts each quarter. a Wages and salaries are calculated for each quarter using the same % as determined by the sales for each quarter. a The statutory requirements are: 0 superannuation is 9.5% of wages and salaries for each quarter 0 payroll tax is applicable as per state legislation as percentage of wages and salaries for each quarter 0 worker's compensation is 2% of wages and salaries for each quarter company tax is 30% of net prot before tax for each quarter. BSBFIM601 Skill Assessment Appendix 1 Version: 2.1 [24 Aug - 2020] Published Page 5 of 12 BSBFIM601 - Skill Assessment Appendix 1 - Business Scenario NIT AUSTRALIA Education for brighter futures Houzit Pty Ltd For 12 months ended Profit & Loss Actuals 2016/17 2017/18 2018/19 2019/20 Revenue Sales 12,474,336 13,472,315 14,550,100 15,714,108 Cost Of Goods Sold 6,860,901 7,409,773 8,002,555 3,799,900 Gross Profit 5,613,465 6,062,542 6,547,545 6,914,208 Expenses - Accounting Fees 5,500 6,500 8,500 9,000 - Interest Expense 45,000 65,000 96,508 90,508 Bank Charges 1,200 1,300 1,580 1,600 - Depreciation 170,000 170,000 170,000 170,000 - Insurance 12,500 12,500 12,500 12,875 - Store Supplies Advertising 50,000 100,000 280,000 280,000 Cleaning 12,560 15,652 18,700 19,261 Repairs & Maintenance 40,250 52,600 60,000 61,800 - Rent 2,465,000 2,465,000 2,465,000 2,538,950 Telephone 9.862 12,523 14,000 14,420 - Electricity Expense 22,500 23,658 25,000 25,750 - Luxury Car Tax 12,400 - Fringe Benefits Tax 26,000 26,000 26,000 28,000 -Superannuateon 148,500 160,737 166,500 171,495 Wages & Salaries 1,649,998 1,785,965 1,850,000 1,905,500 - Payroll Tax 78,375 84,833 87,875 90,511 Workers' Compensation 33,000 35,719 37,000 38,110 Total Expenses 4,770,245 5,017,987 5,331,563 5,457,780 Net Profit (Before Tax) 843,220 1,044,554 1,215,982 1,456,428 Income Tax 252,966 313,366 $64,795 436,928 Net Profit 590,254 731, 188 851,188 1,019,499 BSBFIM601 - Skill Assessment Appendix 1 Version: 2.1 - [24 - Aug - 2020] - Published Page 6 of 12BSBFIM601 - Skill Assessment Appendix 1 - Business Scenario NIT AUSTRALIA Education for brighter futures Houzit Pty Ltd Statement of Financial Position As at 30 June 2018/19 2019/20 Assets Current Assets Cash On Hand 50,000 55,000 - Cheque Account 144,842 160,314 - Deposits Paid 950,000 950,000 - Trade Debtors 850,000 975,000 - Merchandise Inventory 1,530,000 1,430,000 Total Current Assets Fixed Assets - Motor Vehicles At Cost 500,000 500,000 -Motor Vehicles Accum Dep ( 100,000 ) ( 125,000 ) - Furniture & Fixtures At Cost 1,950,000 2,250,000 Furniture & Fixtures Accum Dep ( 650,000 ) ( 770,000 ) - Office Equip At Cost 400,000 400,000 Office Equip Accum Dep (90,000 ) (115,000 ) Total Fixed Assets 2,010,000 ,140,000 Total Assets ,534,842 5,710,314 Liabilities Current Liabilities - MasterCard 17,800 14,860 - Trade Creditors 780,000 679,000 - GST Collected 1,455,010 1,571,411 -GST Paid (943,125 ) (987,626 ) - Superannuateon Payable 100,000 120,000 - Luxury Car Tax Payable 20,920 - income Tax Payable 364,795 436,928 - PAYG Withholding Payable 65,000 44,872 Total Current Liabilities 1,860,400 1,879,445 Long-Term Liabilities - Bank Loans 1,608,459 1,508,459 Total Liabilities 3,468,859 3,387,904 Equity Owner/Shareholder's Equity 500,000 500,000 BSBFIM601 - Skill Assessment Appendix 1 Version: 2.1 -[24 - Aug - 2020] - Published Page 7 of 12BSBFIM601 Skill Assessment Appendix 1 Business Scenario III\" II, NIT AIJHSTRALIMA \"gm. um I Retained Earnings | 850,000 ' 1,565,982 Dividends Paid | (500,000) ' ( 1,200,000) ' , Current Year Earnings ' 1,215,982 ' 1,456,428 Total Equity \\ 2,065,982 \\ 2,322,410 ' Internal Auditor Carl Kems is one of the directors of the board. Carl said that as a board member they are given the prot and cash ow budgets. He was appointed by the board to conduct an internal audit of operations to look for weaknesses in the internal control system. His report uncovered the following processes that he believed needed to be strengthened. a While the overall customer base is increasing from year to year, there may be internal control issues relating to how these new customers are secured. . Some discounts that were being given to customers were recorded as a net amount on the invoices and gave no indication of the discount from standard prices. . Some cash registers in the stores were not reconciling the cash in drawer with the register printout. 0 Not all timesheet overtime amounts were being authorised by the line manager. o Service invoices for some items of equipment were not signed or linked to a purchase order. There was no check that the work had actually been carried out. o Not all assets in the stores had unique codes xed to the asset. o There was minimal feedback lines of communication from the shop oor to head ofce, particularly when an error in the budgeting report process was recognised. o Debtor reconciliations were not done monthly and sometimes not at all. 0 In busy times the cashiers that operated the registers were also asked to do their own reconciliations and banking. Sometimes the cash was held in the store for a day or two. o Job roles were not clearly defined so that responsibilities and liability can be identified. There was little rostering of duties and cash receipts were not pre-numbered. Of particular concern to Carl was the directive given by the board to ensure that audit trails were created and maintained. These included: 0 Signing the timesheets for employees under the authority of a department manager. o Maintenance of a numbered cash receipts book. o Using sequenced cheques as a systematic way of evidencing all monies paid out. BSBFIM601 Skill Assessment Appendix 1 Version: 2.1 [24 Aug - 2020] Published Page 8 of 12 BSBFIM601 Skill Assessment Appendix 1 Business Scenario III\" II, NIT AUSTRALIA lauurlnn lnr brighter mum 0 Ensuring proper coding of evidenced transactions against appropriate general ledger account and cost center. o Ensuring reconciliations between company books and third party bank statements are performed. GST Cash ow budget Statutory requirements for GST is 10% of the recorded amounts in sales. The only capital purchase planned for the year is the luxury car for the chairman. Those expense payments on which 10% GST was paid include the following: 0 Cost of goods sold: 0 accounting fees 0 insurance 0 store supplies 0 advertising 0 cleaning 0 repairs and maintenance 0 rent 0 telephone 0 electricity expenses The GST amount payable each quarter is the difference between the GST collected from sales and the GST paid format as per policy and procedures. CASH FLOW ANALYSIS GST ' 2020/21 ' Qtr 1 ' Qtr 2 ' Qtr 3 ' Qtr4 GST Collected ' x,xxx x,xxx ' x,xxx ' x,xxx ' x,xxx Less GST Paid ' GSTPayable ' Calculation' Calculation' Calculation' Calculation' Calculation Debtors ageing budget X,XXX X,XXX ' X,XXX ' X,XXX ' X,XXX The historical records show that the debtors balance at the end of each quarter is usually about 20% of the quarter's sales. At any time in the debtors balances 1% of the total debtors BSBFIM601 Skill Assessment Appendix 1 Version: 2.1 [24 Aug - 2020] Published Page 9 of 12 BSBFIM601 Skill Assessment Appendix 1 Business Scenario III\" II, NIT AUSTRALIA Eauunnn lnr angina mum is overdue 90 days and over, 5% is 60 days overdue, 10% is 30 days overdue and the balance of the total debtors is current. The aged debtors' budgets are only distributed to the accountant and the accounts receivable clerk. Houzit Budgeting Policies and Procedures Budget development process The standard process for developing budgets will follow the following steps: 1. Establish the budget 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 identied trends to determine assumptions and parameters. 6. Prepare budgets in standard formats. 7. Submit budgets for approval Budget objectives Houzit prepares budgets to meet various company objectives. Budgets are prepared: o for a specic expansion of the business activities: 0 business case to be prepared covering a cost-benet analysis, market research report and summary prot and investment expectations 0 to outline a specic debt reduction initiative: 0 company-wide summary of prot expectations, planned debt and equity funding arrangements, CAPEX plans summarized o annually to cover the next financial year: 0 for the 12-month period from the beginning to the end of the nancial year 0 budget to include four quarter milestones in line with seasonal trends identied from prior year data 0 initial preparation includes a preliminary overview of the nancial year ahead 0 sales budget for next year to be prepared by department by quarter 0 profit budget (including detailed expenses) for the next year to be prepared by quarter BSBFIM601 Skill Assessment Appendix 1 Version: 2.1 [24 Aug - 2020] Published Page 10 of 12 BSBFIM601 Skill Assessment Appendix 1 Business Scenario III\" II, NIT O AUSTRALIA Eauunnn lnr angina mum cash ow effect of the GST payable per quarter to be prepared (scheduled compliance payment date is the 21SI day after the end of the quarter) o To satisfy the statutory requirements relating to the current and shortterm solvency of the company: 0 three monthly rolling forecast of cash flows to be prepared 0 To qualify the strategic plans for the next 35 years planning cycle: 0 prot and CAPEX budget to be prepared. Budget variances and schedules o Key performance indicators that should be closely monitored and reported on include variances to: O O O O O 0 total sales gross prot (GP) % wages and salaries as a % of total sales total expenses as a % of total sales net prot in dollars net pI'Ot as a percentage. o Budget variances will be reported using the standard format provided in this policy and procedures document. 0 Budget variances must be completed within ve working days of quarter end. . Actual results for the month will be provided by the accounting information system. . An analysis of the variance between the actual and the budget must include 55 and % variance. 0 Report with explanations and recommendations to be complete within seven working days of quarter end and be given to the CEO. o Analysis and investigation of variances will include the following priority: 1. 2. 3. Establish the primary causes for variances to key performance indicators of total sales, gross prot % and net profit $. Establish reasons for those individual items in the variance report that represent the greatest $ variance. Establish reasons for those individual items in the variance report that represent the greatest % variance. BSBFIM601 Skill Assessment Appendix 1 Version: 2.1 [24 Aug - 2020] Published Page 11 of 12 BSBFIM601 - Skill Assessment Appendix 1 - Business Scenario NIT AUSTRALIA ducation for brighter futures . Schedules relating to compliance due dates must be prepared and monitored by the accountant. Managers supplying information to the accountant regarding the compliance schedule must submit it at least five working days prior to the due date deadline. BSBFIM601 - Skill Assessment Appendix 1 Version: 2.1 - [24 - Aug - 2020] - Published Page 12 of 12
