The questions to be answered are in Activity 1-3, and the front is the details of some data

THX

Task 4: Cash Budget Report to Business Owner Focus Area: Understanding Accounting Concepts and Conventions, Managing Financial Sustainability, Providing Accounting Advice. Purpose: The purpose of the report is to produce a cash budget for a local business, or from teacher provided data. Students are to evaluate the cash budget, provided comparative balance sheets and income statements, to assist the business owner in determining the appropriate source of finance for the purchase of a non-current asset. Students will demonstrate their ability to create accounting information for the purpose of providing authentic and relevant information to stakeholders. Task Description: Students are to prepare a formal business report or multimedia equivalent. Tom Crush has been offered the opportunity to purchase an indoor plant business called Tropical Indoor Plants. TIP sells plants from a bricks and mortar store located on Unley Road. Mr Crush plans on running the business as a sole trader. As an indoor plant enthusiast, Mr Crush has identified a few issues that need to be considered prior to making a decision to purchase TIP, namely increased competition, supply availability, seasonality, and changing consumer trends. Mr Crush has engaged your accounting service to provide: Information relating to the control of cash (cash budgets) Advice on the impact of the identified issues and strategies counter the issues Provision of Information Mr. Perry, the curent owner of Tropical Indoor Plants (TIP), has provided information to Mr Crush to consider, regarding the current financial position of TIP. TIP currently employs one full time employee to work in the retail outlet, thus freeing up the owner to source stock and operate the business. SALES 80% of sales are cash, 20% are on credit Sales forecast for the next 3 months is shown in the table below: July (actual) $9,000 August (actual) $10,000 Purchases (3000) September (forecast) $12,000 Purchases (3600) October (forecast) $15,000 Purchases (4500) November (forecast) $20,000 Purchases (6000) Debtors historically have paid 75% the months after sale, 24% the second month after sale, and 1% is written off as bad debt. Debtors who pay in the first month receive a discount of 5%. PURCHASES Stock is purchased typically with 40% cash, and 60% credit. The purchases made on credit are paid in full the following month to receive a 2% discount. Purchases each month average out at 30% of the sale value. EXPENSES Expenses are paid in the month they are incurred. Expenses Type Wages Electricity Rent Insurance Accounting Fees Depreciation Other operating expenses September $ 4800 700 3000 100 500 200 800 October $ 4800 700 3000 100 100 200 800 November $ 4800 700 3000 100 100 200 800 Unpaid wages at the beginning of September are $200 New air conditioners and a fogging system costing $6,000 will be installed in September requiring an upfront 10% deposit, and paid for in two equal instalments in October and November. Electricity expenses are expected to increase by 10% in October following the new climate control installations. 3 If Mr Crush were to purchase the business at the beginning of September, the bank balance would be $2000. Other information If the business were to be forcibly shut due to a Covid-19 Lock Down, then the land lord has agreed to reduce rent by half for the lock down period, and sales would decrease to nil. The employee would be stood down temporarily, and receive JobKeeper payments through the business. Mr Crush hopes to draw $2,000 a month The business plans to sell the old air conditioning machine for $1000 Mr Crush intends on allocating cash at a rate of 20% of profit per month to be held for future income tax obligations ACTIVITY 1 Mr Crush requires you to complete a cash budget for the months of September-November. a) Create a Collection from Debtors Schedule. b) Prepare a Cash Budget for September, October and November. c) Prepare an Income Statement for September, October and November. d) Explain to Mr Crush why the Profit (Loss) amount from the Income Statement at the end of November differs from the cash budget cash position at the end of November. e) Explain to Mr Crush why depreciation has not been included in the cash budget, and why the provision for tax has not been included in the Income Statement. f) Explain to Mr Crush how he may use the cash budget to make decisions. g) Provide advice to Mr Crush as to the suitability of purchasing the TIP based on the information created in Activity 1 ACTIVITY 2 Variance analysis from the budgeted payment amounts in August are considered. a) Complete the variance table below showing budgeted versus actual amounts. Account Name Wages Electricity Sales Actual $ 4850 730 11,000 Budget $ 4800 700 10,000 Variance $ b) Provide advice to Mr Crush about how the variance analysis conducted in part a) could be used to assist in the preparation of the cash budget. c) Create an adjusted cash budget for September 2021 that takes into consideration the variance analysis. d) Provide Mr crush with a cash budget that explores what would happen if the government of south Australia forced a lock down for 1 month in the month of October e) Give advice to Mr crush about how to plan for a potential lock down and minimise the financial impact of the event. f) Provide Mr Crush with advice as to how he may use the cash budget to control and plan for the cash at bank balance. g) Mr Crush has provided further instructions to you that in one year's time he plans on selling plants online to grow income, and wants advice as to the following issues: environmental issues, impact on the current operations of the business, impact on the cash budget. h) A business report on sales of indoor plants has indicated that consumer trends indicate sales from small retailers in South Australia are plateauing with increased competition from national businesses. Further that sales tend to mimic the seasons, peaking in Summer, and dipping in Winter by as much as 50%. This is partly due to supply issues, given that plants need warmth to grow, and their life and growth follows the seasons and supply of plants is limited during winter. Explain the impact this information is likely to have on the preparation of future cash budgets. ACTIVITY 3 Mr Crush seeks advice on the best sources of funding for the new environmental controls. a) Give Mr Crush advice on the most appropriate source of funding for the Environmental Controls. b) Mr Crush has reservations about how best to handle cash on the premises. Give Mr Crush advice on some procedures to safe guard the handling of cash, and why these procedures are critical to TIP's success. c) Provide Mr Crush on how the retail industry is using technology to minimise the risk of cash theft from retail outlets. d) Give Mr Crush advice as to the most cost effective means to handle cash at the retail outlet. Task 4: Cash Budget Report to Business Owner Focus Area: Understanding Accounting Concepts and Conventions, Managing Financial Sustainability, Providing Accounting Advice. Purpose: The purpose of the report is to produce a cash budget for a local business, or from teacher provided data. Students are to evaluate the cash budget, provided comparative balance sheets and income statements, to assist the business owner in determining the appropriate source of finance for the purchase of a non-current asset. Students will demonstrate their ability to create accounting information for the purpose of providing authentic and relevant information to stakeholders. Task Description: Students are to prepare a formal business report or multimedia equivalent. Tom Crush has been offered the opportunity to purchase an indoor plant business called Tropical Indoor Plants. TIP sells plants from a bricks and mortar store located on Unley Road. Mr Crush plans on running the business as a sole trader. As an indoor plant enthusiast, Mr Crush has identified a few issues that need to be considered prior to making a decision to purchase TIP, namely increased competition, supply availability, seasonality, and changing consumer trends. Mr Crush has engaged your accounting service to provide: Information relating to the control of cash (cash budgets) Advice on the impact of the identified issues and strategies counter the issues Provision of Information Mr. Perry, the curent owner of Tropical Indoor Plants (TIP), has provided information to Mr Crush to consider, regarding the current financial position of TIP. TIP currently employs one full time employee to work in the retail outlet, thus freeing up the owner to source stock and operate the business. SALES 80% of sales are cash, 20% are on credit Sales forecast for the next 3 months is shown in the table below: July (actual) $9,000 August (actual) $10,000 Purchases (3000) September (forecast) $12,000 Purchases (3600) October (forecast) $15,000 Purchases (4500) November (forecast) $20,000 Purchases (6000) Debtors historically have paid 75% the months after sale, 24% the second month after sale, and 1% is written off as bad debt. Debtors who pay in the first month receive a discount of 5%. PURCHASES Stock is purchased typically with 40% cash, and 60% credit. The purchases made on credit are paid in full the following month to receive a 2% discount. Purchases each month average out at 30% of the sale value. EXPENSES Expenses are paid in the month they are incurred. Expenses Type Wages Electricity Rent Insurance Accounting Fees Depreciation Other operating expenses September $ 4800 700 3000 100 500 200 800 October $ 4800 700 3000 100 100 200 800 November $ 4800 700 3000 100 100 200 800 Unpaid wages at the beginning of September are $200 New air conditioners and a fogging system costing $6,000 will be installed in September requiring an upfront 10% deposit, and paid for in two equal instalments in October and November. Electricity expenses are expected to increase by 10% in October following the new climate control installations. 3 If Mr Crush were to purchase the business at the beginning of September, the bank balance would be $2000. Other information If the business were to be forcibly shut due to a Covid-19 Lock Down, then the land lord has agreed to reduce rent by half for the lock down period, and sales would decrease to nil. The employee would be stood down temporarily, and receive JobKeeper payments through the business. Mr Crush hopes to draw $2,000 a month The business plans to sell the old air conditioning machine for $1000 Mr Crush intends on allocating cash at a rate of 20% of profit per month to be held for future income tax obligations ACTIVITY 1 Mr Crush requires you to complete a cash budget for the months of September-November. a) Create a Collection from Debtors Schedule. b) Prepare a Cash Budget for September, October and November. c) Prepare an Income Statement for September, October and November. d) Explain to Mr Crush why the Profit (Loss) amount from the Income Statement at the end of November differs from the cash budget cash position at the end of November. e) Explain to Mr Crush why depreciation has not been included in the cash budget, and why the provision for tax has not been included in the Income Statement. f) Explain to Mr Crush how he may use the cash budget to make decisions. g) Provide advice to Mr Crush as to the suitability of purchasing the TIP based on the information created in Activity 1 ACTIVITY 2 Variance analysis from the budgeted payment amounts in August are considered. a) Complete the variance table below showing budgeted versus actual amounts. Account Name Wages Electricity Sales Actual $ 4850 730 11,000 Budget $ 4800 700 10,000 Variance $ b) Provide advice to Mr Crush about how the variance analysis conducted in part a) could be used to assist in the preparation of the cash budget. c) Create an adjusted cash budget for September 2021 that takes into consideration the variance analysis. d) Provide Mr crush with a cash budget that explores what would happen if the government of south Australia forced a lock down for 1 month in the month of October e) Give advice to Mr crush about how to plan for a potential lock down and minimise the financial impact of the event. f) Provide Mr Crush with advice as to how he may use the cash budget to control and plan for the cash at bank balance. g) Mr Crush has provided further instructions to you that in one year's time he plans on selling plants online to grow income, and wants advice as to the following issues: environmental issues, impact on the current operations of the business, impact on the cash budget. h) A business report on sales of indoor plants has indicated that consumer trends indicate sales from small retailers in South Australia are plateauing with increased competition from national businesses. Further that sales tend to mimic the seasons, peaking in Summer, and dipping in Winter by as much as 50%. This is partly due to supply issues, given that plants need warmth to grow, and their life and growth follows the seasons and supply of plants is limited during winter. Explain the impact this information is likely to have on the preparation of future cash budgets. ACTIVITY 3 Mr Crush seeks advice on the best sources of funding for the new environmental controls. a) Give Mr Crush advice on the most appropriate source of funding for the Environmental Controls. b) Mr Crush has reservations about how best to handle cash on the premises. Give Mr Crush advice on some procedures to safe guard the handling of cash, and why these procedures are critical to TIP's success. c) Provide Mr Crush on how the retail industry is using technology to minimise the risk of cash theft from retail outlets. d) Give Mr Crush advice as to the most cost effective means to handle cash at the retail outlet