Financial Management in Business

This course covers various aspects of financial management in business, including budgeting, forecasting, cash flow management, and financial analysis. Students will learn how to interpret financial statements, make budgetary decisions, and ensure compliance with taxation laws.

Accounting
1

Table of Contents
Task 1: Written activity...................................................................................................................6
Q1................................................................................................................................................6
Q2................................................................................................................................................6
Q3................................................................................................................................................6
Q4................................................................................................................................................6
Q5................................................................................................................................................6
Q6................................................................................................................................................7
Q7................................................................................................................................................7
Q8................................................................................................................................................7
Q9................................................................................................................................................7
Q10..............................................................................................................................................8
Q11..............................................................................................................................................8
Q12..............................................................................................................................................8
Q13..............................................................................................................................................8
Q14..............................................................................................................................................8
Q15..............................................................................................................................................9
Q16..............................................................................................................................................9
Q17..............................................................................................................................................9
Q18............................................................................................................................................10
Q19............................................................................................................................................10
Q20............................................................................................................................................10
Q21............................................................................................................................................11
Q22............................................................................................................................................11
Q23............................................................................................................................................11
Q24............................................................................................................................................12
Task 2: Workplace activity............................................................................................................13
Q1..............................................................................................................................................13
Q2..............................................................................................................................................13
Q3..............................................................................................................................................14
Q4..............................................................................................................................................15
Q5..............................................................................................................................................15
Q6..............................................................................................................................................15
Q7..............................................................................................................................................16
Q8..............................................................................................................................................17
Q9..............................................................................................................................................17
(a)...........................................................................................................................................17
(b)...........................................................................................................................................17
(c)...........................................................................................................................................18
Q. 10..........................................................................................................................................18
Q11............................................................................................................................................19
Q12............................................................................................................................................21
Q13............................................................................................................................................22
Q14............................................................................................................................................22
Q15............................................................................................................................................23
Q16............................................................................................................................................23
2

Q17............................................................................................................................................23
Q18............................................................................................................................................24
Q19............................................................................................................................................25
Q20............................................................................................................................................26
Q21............................................................................................................................................26
Q22............................................................................................................................................26
Task 3.............................................................................................................................................28
Q1..............................................................................................................................................28
Q2..............................................................................................................................................28
Q3..............................................................................................................................................29
Q4..............................................................................................................................................29
Q5..............................................................................................................................................30
Q6..............................................................................................................................................30
Q7..............................................................................................................................................30
Q8..............................................................................................................................................31
Q9..............................................................................................................................................32
References:-...................................................................................................................................34
3

Task 1: Written activity
Q1.
The expenses when are allowed then the tax is not applicable to those expenses i.e. they are
reduced from the taxable income like the expenses for day to day operation like advertisement,
bank charges, etc. while disallowed expenses are liable to taxation i.e. they are not reduced from
the taxable income like donations, amortization of expenses, etc. (Australian Government, 2017).
Q2.
The income of the trust is distributed to the adults then the trust is not liable for the tax, while if
the income is distributed to the minor or non-residents then the trustee will be liable on their
behalf. The trust income is accumulated and liable for the highest rate of tax (Australian
Government, 2017).
Q3.
The forecast returns show the expected cash flows of the future from the business. The returns
which predict the future taxable income with the help of the historical information and the
forecast returns help to the company to make an estimate of the position of the company in
future. The past trends of the expenses and the income will help in making the forecast returns
(Masturzo, 2016).
Q4.
The organization which is incorporated is required to fulfill the objectives for which it has been
incorporated. The organizations do not focus on earning the profits. While preparing the
statutory returns the not for profit organization will be required to abide by the applicable
legislation (Australian Government, 2017).
4

Q5.
The client objectives can be presented with the help of methods for quantitative objects such as
preparing various reports for performance evaluation like sales, accounting, etc., budget, etc. For
qualitative objects, the performance can be evaluated by following the methods like observing,
feedback, etc.
Q6.
The cash flow for an organization is mainly through the trade receivables, payables or any
shortfalls (Driver, 2018). The cash flow can be controlled by following the below-mentioned
methods:
1. Maintain reserves for cash which can be used to meet the shortfalls.
2. The customers of an organization should be encouraged to pay fast.
Q7.
The legislative acts which a business organization is required to follow are:
1. Taxation Act, 2003
2. Occupational Health and Safety Act, 1989
There is much more legislation which the organization is required to follow as per the structure
and business that the company is doing (Australian Government, 2017).
Q8.
The financing information can be provided by various means i.e. through consulting the financial
consultants, taxation consultants, etc. The information can be referred to the applicable
regulations which the company is required to follow the taxation act, 2003 and the auditing and
assurance standards board, Australian Financial Security Authority, etc.
5

Q9.
The client is following the business of veterinary services and the main objective of the client is
to provide the financial management regarding the GST and the reduced taxation on income and
various other reports of legislation.
Q10.
The business assets of Anthony Bowman are building, equipment, inventories, and vehicles.
These assets are necessary for an organization to run and achieve success and the objective
which it desires.
Q11.
The size of the business can be evaluated by determining the staff size or the size in terms of the
quantity. In terms of staff, the size of the business is 5 who are in full-time employment. If the
size is determined in terms of quantity then the size of the business will be:
1. Balance sheet basis- $ 550,000- $ 50,000= $ 500,000.
2. Income basis- $ 1,000,000- $ 680,000= $ 320,000.
Q12.
Anthony Bowman, who is a director, is currently in a sole proprietorship business where the sole
proprietor alone will be responsible for all the acts and the liability. The veterinary services are
being provided by Anthony Bowman. The business can be termed as a small business since the
revenue of the business is less than $ 2Million.
Q13.
The information which is provided is that the business the client is operating since five years and
the administrative staffs that are part-time are providing the internal reports about the payment
which is required to be done to the accounts and banking people including the payment which is
paid for fortnightly.
6

Q14.
The financial options available to the company are:
1. The company can consider the factoring method.
2. The company can obtain a loan from the bank to increase the performance of the
business.
3. The company can raise the finance with the help of accelerators and incubators.
4. Crowdfunding is the best way in today’s world to raise the finance.
Q15.
Bowman Company
Operational Project
Forecast Returns Vs. Actual Returns
Quarter Forecast Actual
Amount ($) Amount ($)
September 5000 5500
December 5000 9000
March 5000 3000
June 5000
Total 20000 17500
Summary:
Until the year-end, the company has an actual return of $ 16,500 which is $ 2,500 more than the
estimated forecast returns. The returns are more due to the reason the peak time in the Quarter of
December. The estimations of the company will be reached at the end of the financial year.
Q16.
The review point in financial management will be analyzing the results from the budget. The
budget that has been prepared and the results when compared to the actual, then the actual results
are more and the company is expecting that the company will reach the budget estimation.
7

Q17.
Bowman Company Financial Management
Quarterly Questionnaire
Current Objective Change to Comments
Financial Statements
Reporting
No Change Satisfied
BAS Preparation No Change Satisfied
IT Return Preparation No Change Satisfied
Q18.
The company is a need to change the objectives. The new objective of the company is to provide
more responsibilities to the secretary so that the financial authority duties are also fulfilled. This
objective will include providing the information regarding BAS. The secretary will also be
responsible to prepare the financial statements at the meeting.
Q19.
The following ratios are to measure the stability of the business:
1. Debt-Equity Ratio
2. Interest Coverage Ratio
The above ratios will be computed and accordingly, the stability of the business will be
understood. Since, on the basis of the debt-equity ratio, the company will be able to understand
whether there are more debts than the assets (Basu, 2018).
8

Q20.
Debt Ratio= Total Debt/Total Assets
Where, total debt = $ 450,000
Total assets = $ 2,500,000
Hence, debt ratio= 450000/2500000
= 0.18 times
Q21.
Summary Statement
Debt Ratio
Particulars Formula Summary
Debt Ratio Total Debt/
Total Assets
The debt ratio provides the information about the debt
which the company owes in respect to the assets. The
company is able to understand the stability of the
business which the company is doing.
Q22.
If the reporting deadlines are not met by the company the company will be liable to pay a
penalty. The ATO will inform the company by phone and the penalty statement and due date for
payment will be provided. The ATO can provide remission to the penalty if there was a
sufficient cause of not meeting the deadlines (Australian Government, 2017).
Q23.
Bowman Company
Financial Plan Extract
Particulars Deadlines Compliance Requirement
Returns 31 October Self-preparers and the tax
agent clients
Income tax 1 December Large and medium companies
9

Income tax Return 28 February Non-taxable large and
medium companies
Income Tax Return 31 March Tax agents clients whose
income is in excess of $2
million
Income Tax Return 15 May All companies
Q24.
January
February
March
April
May
June
July
0
200
400
600
800
1000
1200
Activity level- Customer purchasing
Activity level- Customer
purchasing
Figure: Column Graph
Source: (By Author)
10

January
February
March
April
May
June
July
0 200 400 600 800 1000 1200
Activity level- Customer purchasing
Activity level- Customer
purchasing
Figure: Bar Graph
Source: (By Author)
Task 2: Workplace activity
Q1.
Two type of business which is described in the Client Information Form are Building services
and sole proprietary. There are different legal laws for registration of the company and a sole
proprietorship and they also have different minimum requirement of members for registration.
There are differences in the way they maintain their books of accounts (Ecommerce Basics,
2012).
The company has limited liability whereas proprietorship has unlimited liability. Sole trader has
very few legal and tax formalities with accountability on tax matters to Australian tax authority
for maintaining proper books of accounts and timely payment of GST and IT
Q2.
Financial Analysis:-it includes the process of identifying, analysis, reviewing the financial
statement of the company. In order to know the financial position of the organization in terms of
past year data or with the other companies and to take better financial decisions.
11

Cost-benefit analysis: - under this analysis, we try to understand how feasible any project would
be for the organization in terms of cost and return associated with it. If the cost is more than the
return it generates, then the said need not be adopted (Management Study Guide, 2018).
Profitability Analysis: - this type of analysis part of Enterprise resource planning. It helps in
knowing and forecasting the profitability of the said project. It will allow the management to
know how economic the project would be if undertaken and improve the profitability of existing
projects.
Solvency analysis:-there is a ratio to for this analysis. It helps in establishing whether the
company has sufficient balance to meet its long term and short term obligation. It also measures
the liquidity to know how quickly the assets can be converted into cash (Management Study
Guide, 2018).
Q3.
XYZ Company
Operational Project
Forecast Returns versus actual Return inflow
Year End June 20**
Quarter Expected Returns Actual Returns
September 10000 12000
December 10000 10000
March 10000 7500
12

June 10000 11000
Total of Column 400000 40500
Summary:
It is very evident from the above table that during the year ending on June expected
returns were 40000 and the actuals were 40500. Both are in line with each other. This
proves that the XYZ Co. is doing well. And the financial planning in working out
Q4.
Financial Management has various stages every stage has cost and benefit associated with it. At
the early stage when the financial plans are set and implemented, at this stage they tend to
generate lesser income as a comparison to later stages (Maranjian, 2013).
Q5.
Finance manager should try to know the reasons behind the difference between actuals and
anticipated. In case if the difference is positive then factors behind same need to identify and
implement. In case of a negative difference then the finance manager needs to locate the extra
expenses, external and internal factors which affect the organization. The controlling measure
needs to be taken to control these factors.
Q6.
Received a message from the CEO of XYZ company with regards to change in the responsibility
and objectives. CEO has intimated that the present structure of financial planning has been doing
13

well hence the same can be continued. Manual has to prepared to assist Finance officers in their
new duties and will help in the proper maintenance of records and all other material facts. Along
with helping finance officer in the execution of roles and responsibilities towards the
organization. The client also communicated to provide enough guidance regarding monthly
board meeting. And to prepare a questionnaire for the quarter to depict current and proposed
new objectives (Management Study Guide, 2018).
14

Q7.
XYZ Company File note for Changes in financial
1.10.20**
Client Intimated that the financial position report contains too much of details. It is to
provide certain items and adjustment explanations in order to avoid further confusion and
give clarity to the transactions. So that financial give a true and fair picture of the
organization. There was no explanation for the purchase of benches which were added to the
assets on the balance sheet. Reason being there is no such requirement for the same as it is
very clear when the value of the assets is increased in total. All the necessary changes will
be incorporated as per your specification (Management Study Guide, 2018).
15

XYZ Company File note for Higher GST
15.11.20**
Received contact form the XYZ Company regarding increased GST. The client intimated
that they had to pay the GST higher than the normal. The reason for increased amount and
payment toward GST was due to the previous year income. As both the Incomes were
combined GST amount got hiked. We at our end will to try to rectify the error by refilling
and applying for refund. In Case of no refunds financial loss of XYZ will be indemnified by
our organization.
Q8.
Q9.
(a)
While preparing BAS summary financial Manager needs to keep certain guidelines into
consideration. BAS summary report is of two types one being simple tax report and other being a
Full summary report. Learning about GST would be of the interest to the finance manager.
Along with studying various parts of the BAS report.
(b)
It would be interesting to know that there are four important sections in full summary report.
And even to know about the guidelines of GST which are applicable in Australia in specific like
GST is charged a flat rate of 10% on goods and services which are sold and consumed in
Australia. Accounts for the GST is either cash or non-cash basis.
16

(c)
Finance Manager Need to be vigilant in the calculation of the GST amount which they own to
the Tax authorities for sale and the amount Australian Tax authority owes you for purchases. For
which we can claim credits. Finance Manager needs to be clear about the tax amount which is
withheld. The manager is required to be receiving all the invoices containing GST included in
their prices. The manager also makes sure that the statement is filled on time before the due
dates. Ensure mathematical accuracy to avoid penalties and fine (Australian Government
Taxation office, 2017).
Q. 10.
Bank Reconciliation Statement
Particulars Amount
Add:- Not Presented Cheque
No 100 5000
No101 5000
No 102 3000
No 103 4000
Cheque NO 98 Debited 10000
Cheque NO 99 Debited 5000
17

Total (A) 32000
Less: Cheque Deposited 10000
Opening Balance 90000
Total(B) 100000
Closing Balance as per Bank Statement (B-A) 68000
Q11.
KLM Company
Comparison of financial performance
2012 and 2013
Account 2012 2013 $Difference Per Cent Common size (per cent
of sales income)
2012 2013
Sales
income
$230,000 $320,000 $90,000 39 100 100
18

Cost of
sales
$115,000 $165,000 $50,000 43 50 51.6
Wage costs $30,000 $45,000 $15,000 50 13 14
Transport
costs
$25,000 $35,000 $10,000 40 10.9 10.9
Marketing
costs
$15,000 $20,000 $5,000 33 6.5 6.3
Total costs $185,000 $265,000 $80,000 43 80.4 82.8
Profit $45,000 $55,000 $10,000 22 19.6 17.2
The table gives us a clear picture of the performance of the organization. The sales figure has
gone up by 39%. This is a good indicator of the company’s performance. Along with the sales
even the cost of sales has gone up by 43%. This shows that the cost of sales is 43% of revenue.
Even the wages have gone up by 14% of sales. The total cost has gone up by 43% of revenue.
All the expenses can be covered by the revenue generated hence the financial decision are taken
properly. And all the resources have been deployed keeping in mind the revenue and their
efficiency. Even though the cost of labor and cost of marketing has gone up but it has been
beneficial for the organization and has helped in earning revenue.
19

Q12.
QRS Co Motor vehicle expense account
Cost-benefit analysis using
Budget versus Actual Variance Reporting
October 20xx
Month Existing
Estimate
Change to Effect on:
Income Expenses Cash Flow
July $700 Decrease Increase Decrease
Aug $750 Decrease Increase Decrease
Sept $800 Decrease Increase Decrease
Oct $900 Decrease Increase Decrease
Nov $950 $830 Increase Decrease Increase
Dec $800 $680 Increase Decrease Increase
Jan $800 $680 Increase Decrease Increase
20

Feb $800 $680 Increase Decrease Increase
March $800 $680 Increase Decrease Increase
Apr $800 $680 Increase Decrease Increase
May $800 $680 Increase Decrease Increase
June $800 $680 Increase Decrease Increase
Total $9700 $5590 Increase Decrease Increase
Q13.
Financial Stability can be measured using various ratios few of them are as follow
Debt Ratio: - Total Liabilities / Total Assets
This ratio indicates the portion of assets which are financed by debt. It shows the companies’
ability to pay its debts out of the assets. It is solvency ratio. In other words, it measures the
financial leverage of the company. The higher leverage ratio is not good for investors.
Gearing ratio: - Total assets/ total shareholders’ equity
It measures the capital structure of the company and the financial strength of the company.
Highly geared companies are considered riskier (Rahman, Dalabeeh, 2013).
Q14.
Debt Ratio:- Total Liabilities / Total Assets
21

Total Liabilities as given are $ 2500000
Total Assets gave $ 150000
250000/150000 = 1.66 times
This ratio calculates the total liabilities to total assets. It is solvency ratio. Lower the Debt ratio
more stable is the business in contrast to other ratios. It shows that the company has more assets
as compared to the liability hence the company is stable. In the above calculation, the liabilities
are more hence the financial position is riskier. Liabilities are 1.66 times more than assets. Every
business has its own benchmark for calculating its solvency position but 0.5 ratios in case of debt
ratio is considered ideal (Rahman, Dalabeeh, 2013).
Q15.
The report would be prepared at the stage of growth. This is the time when the business needs to
maintain sufficient capital for meet operation cost. Business need to vigilant about the
opportunities available. It is the critical time to start diversifying and expanding and time for
proper financial planning (Management Study Guide, 2018).
Q16.
Evaluation Report of XYZ Company
From the file note, it can be observed that company is financially stable as it has the financial
potential of $ 330000 and the same has been maintained over 3 years, Along with having
retained earnings of $100000. This is an indicator solvency and liquidity. The XYZ fulfills all
the statuary requirement. Few of them are the organization is expected to prepare BAS for GST
on time and fill the same. Make payment for GST and IT to the Australian Tax Authority as per
the IT act 1936. All the accounting standards are complied with. XYZ gives preference to invest
in government bonds. Because they are less risky and they keep fund safe.
Q17.
In Australia there exists AASB Australian Accounting standard board to establish accounting
22

standards. If the statutory requirement of reporting is not met then the organization is subjected
to penalties and fine they might be levied on the profits of the company in our case ABC Finance
Management. Along with fines and penalty the client can also be subjected to legal
proceedings. The AASB has defined various methods of reporting financial information failing
to meet the standards, the organization might not be able to avail the tax benefit which otherwise
would be provided (Stevanson, 2012).
Q18.
Alpha Ltd Financial Plan 1/7/20xx
Business Name Alpha Ltd
Primary Contact Adam
Financial Information
sought
Make all the material information available and the same need to
be entered accounted for on regular basis. All the relevant
vouchers and receipts for the same need to be provided.
Compliance
Alpha Ltd is needed to account for only the related expenses and
receipts. They must be recorded on the accrual basis. All the
transaction should have supporting documents as a source of
evidence.
Reporting deadlines
Alpha Ltd is required to furnish their accounts on 5^th of next
month with all the material information. The same need to be
approved by the internal Chartered Accountant. Delay in
furnishing the books of accounts will attract penalties.
23

Q19.
Month Activity Level:
Patient – Days
January 5,600
February 7,100
March 5,000
April 6,000
May 7,300
June 8,000
July 6,200
24

Jan Feb Mar Apr May Jun Jul
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
Activity Level : Patient – Days
Activity Level : Patient – Days
Q20.
All the operation cost and expenses are to be recorded. In the above case, the fuel expenses have
been understated that has resulted in increased tax liability. In order to cover this situation, the
accounts executive can ask for the receipts and record the same provided he/she should ensure
that the expenses need to be related to the business.
Q21.
As per the financial standards and accounting procedure, only those expenses and revenue are
taken into consideration which can be directly associated with the core business of the
organization. All the documentary evidence like vouchers, bills, and invoices need to be
collected. Because they serve as documentary proof. Expenses and revenue are to be recorded
only on actual basis. Livestock selling expenses are to be taken if they belong to the business
otherwise they do not qualify for the deduction. Bank statement reflects the entries made in the
accounts based on bank statement or Cheque deposited or issued. The bank statement can help in
cross-checking entries.
Q22.
Present the loan in an appropriate table showing the zero closing balance at the end of five years.
25

XYZ Company Cost of long-term finance
Of 100,000 at 10% for 5 years
Year Opening Balance Repayment Balance
1 161,051.00 32,210.20 128,840.80
2 128,840.80 32,210.20 96,630.60
3 96,630.60 32,210.20 64,420.40
4 64,420.40 32,210.20 32,210.20
5 32,210.20 32,210.20 0.00
The table shows the future value of $ 100000 is $ 161051 compounded annually at the rate 10%
Repayment amount for the 5 years remains constant and become nil at end of 5th year.
The opening balance has been calculated using the Formula of Future value.
FV = PV(1+i)^no of years
Here PV stands for the present value and I stand for the interest rate. Using this formula we can
find out the future value of loan amount at present date. The total repayment constant amount is
32210.20 the same has been achieved by dividing 161051by 5 years (Schmidt, 2014).
26

Task 3
Q1.
The client can claim the following expenses as per the Taxation law:
1. Travelling Expenses
2. Vehicle expenses
3. Clothing and laundry related expenses
4. Gifts and specific donations
5. Office expenses
6. Interest and dividend
7. Education related expenses of self
8. Other deductions
9. Deductions related to the industries which are of specific nature
The expenses can be claimed after there is specific evidence regarding those expenses. The client
is required to retain the receipts of all the expenses like the invoice, etc. for which the client
needs deduction. The management and maintenance expense can be claimed immediately as and
when they occur. The expenses which were paid by any other person can’t be claimed by the
client (Australian Government, 2017).
Q2.
The depreciation difference between the tax books and the books of the client is due to the
treatment and is termed as a temporary timing difference. The client has charged depreciation of
$ 90,000 while the allowable expense is $ 45,000. The client has paid the tax more in the current
year but will be entitled to a deduction in the future years. The tax paid more will create a
deferred tax asset for the client which will be reversed in the year in which it will be reversed.
The client will be able to understand the taxability in the case where there is allowable expense
less than the claimed expense. The client will be informed that the tax asset which has been
created will be reversed in future years (Australian Government, 2017).
27

Q3.
Cash Flow Forecast Summary
Quarterly
Quarter Septembe
r
Decembe
r
March June
Opening
Balance
45,0
00
60,
000
70,
000
120,
000
Cash Inflow 65,0
00
70,
000
85,
000
90,
000
Cash
Outflow
(50,0
00)
(60,0
00)
(35,
000)
(70,
000)
Closing
Balance
60,0
00
70,
000
120,
000
140,
000
The company’s cash balances are increasing as per the budget and the client should formulate a
policy and plan the business according to the budget so that the objective is achieved. The client
should prepare a strategy through which the client is able to understand various ways or methods
through which the cash balance can be increased as per the budget (Coltman, 2018).
Q4.
The budgetary control has many measures among which the two of them are:
1. Budget- The statement in which activities of the company are set aside for a specific
period of time. The budget is prepared to forecast the activities for future and predict the
position of the company. The budget is prepared on the basis of historical information of
the client. The budget estimates the revenue and expense which will incur over a period
of time.
2. Budgetary Control- The measure which will compare the actual results with the
budgets. The actual results will be achieved on the basis of the strategy and plan which
was prepared on the basis of the budgets. The management will be responsible for the
28

deviations, if any, occurs. In case of any deviation, the management is required to take
action and will consider the need to revise the budgets (Adongo, & Jagongo, 2013).
Q5
We need to ensure that expenditure related to only business is recorded in P& L account. In order
to control the wages, HR Manager need to ensure that no wages are paid to the dummy workers.
There is no pocketing of wages by the wage distributor.
A responsible person needs to ensure that the vehicle is not being used for the personal work that
can increase the fuel and maintenance cost. Vehicles are to be used only for the business
purpose.
To ensure that telephone is not misused it should be postpaid and the call details need to be
checked to know whether the calls were made for personal or the professional work. Telephone
expenses should not be given only to required employees (Green Traders, 2018).
Q6
By adhering to correct accounting standards as applicable. Every transaction made by the
accountant needs to be backed by the documentary evidence. Documentary evidence can be an
invoice, bills, vouchers, statements, deeds and even bank statement at times.
The accountant needs to ensure all the records are updated and are presented as and when
needed. All the financials are should be true and fair. All the transactions need to be clearly
stated with an explanation. All the returns to be filled on time with ITO (Ahid, 2012).
Q7.
XYZ Company Financial Plan Extract
1/7/20xx
29

Business Name XYZ Incorporated Notes
Primary Contact Mr. Samuel
Clients Objective To achieve profitability and efficiency in all the existing projects.
The main aim is to keep the cost under control and to exercise
control over the business activity. To ensure that financial
planning is executed and reviewed on time regularly.
Q8.
Account 2014 2015 $ Difference Per CentCommon Size (per cent of
sales income)
2014 2015
Income from sales $230,000 $320,000 $90,000 39 100 100
Costs from sales $115,000 $165,000 $50,000 43 50 51.6
Wage Costs $30,000 $45,000 $15,000 50 13 14
Transport Costs $25,000 $35,000 $10,000 40 10.9 10.9
Marketing Costs $15,000 $20,000 $5,000 33 6.5 6.3
Total costs $185,000 $265,000 $80,000 43 80.4 82.8
Profit $45,000 $55,000 $10,000 22 19.6 17.2
30

It is very clear from the table sales has gone up by 39% in FY 2015. The sales figure has gone up
by 39%. This is a good indicator of the company’s performance. Along with the sales even the
cost of sales has gone up by 43%. Even the wages have gone 13% of sales. The total cost has
gone up by 43% of revenue. All the expenses can be covered by the revenue generated hence the
financial decision are taken properly. And all the resources have been deployed keeping in mind
the revenue and their efficiency. Even though the cost of labor and cost of marketing has gone
up but it has been beneficial for the organization and has helped in earning revenue. There is
very minute hike in the expenses as compared to the revenue it has generated. The company
needs to try to reduce the cost of sales as a measure of cost reduction (Verma, 2017).
Q9.
Show your answer in the form of a trading account.
Note: - as it is stated in the question R Stubbs sales at 25% above the cost of sales. Therefore the
cost of sales can be calculated as 60000/125*100= $48000. A purchase is calculated by taking
the difference between the total of debit side and (opening stock + cost of goods sold).
31
Trading Account
Particular Amount Particular Amount
To opening stock $9872 By Sales $60000
To Purchase $14748
To Cost of Goods
Sold $48000
By Closing
stock $12620
Total $72620 Total $72620

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