Question 1

Calibri Pty Ltd run by Dusty Springfield conducts a ladies cosmetics online store as is considering employing her first assistant to help with the posting and packaging of orders.

Prepare budgets in accordance with income and expenditure forecasts, and periodically review to ensure accuracy of tax obligation estimates.

Estimates are provided in the following table:

a)Complete the cash budget with the projected cash position after 4 months using the instalment income method, for working out the PAYG instalment.

HINT: Work out the amount of each PAYG instalment and then insert it in the correct month and then total up, and comment on the cash flow situation.

b)You should also use the alternative method (instalment income x instalment rate method) to calculate the PAYG instalment.

Notes:

Their notional tax is $20,000 for the year.

Their instalment rate is 5%.

They do not wish to have any variations to either the notional tax or the instalment rate.

Cash Budget for 4 months to April

ITEM

JAN.

$000's

FEB

$000's

MAR

$000's

APR

$000's

Sales (all cash)

21

26

21

17

Other income

2

0

2

0

TOTAL

Purchases (all Cash)

10

8

8

7

Utilities (Teleph etc)

4

3

3

3

Accounting fees

0

6

0

0

Rates

0

0

0

16

Insurance

13

0

0

0

Motor veh running expenses

3

3

3

3

Tax

Sundry

0

0

2

1

TOTAL

Increase (dec) in cash

Balance beginning

10

Balance end

c)After preparing the cash budget, you are told that the business now lodges its latest tax return on 30^thApril; and the subsequent ATO assessment calculates a new notional tax for the next year of $30,000. Dusty is planning to hire an employee assistant in May and their remuneration would require additional cash flow.

What has to change on the cash budget for April to June? Review the budget and developat least two (2)management strategies that could be implemented to accommodate these changes in line with the new tax obligation etc.

d)Referring to your strategies from (c), outline the management processes you would need to put in place to ensure they were successful. You should consider internal controls as well as record-keeping and compliance requirements. Document the management processes in the template below.

Internal control

E.g. All loan contracts are authorised by two directors, documented by a signature

Strategies to apply control measure

Internal control 1

Internal control 2

Record keeping requirement 1

Record keeping requirement 2

Compliance requirement

e)What are the implications on the funding structure (and possibly the overall organisational structure) of the amended cash budget for the entity's operations and cash flow issues? In your answer, suggest at least two funding options that can remove their cash flow problems.