Manage Finance

This document provides study material on managing finance, including budget development, compliance requirements, financial management software, and accounting principles. It also includes a case study on Stott's Pty Ltd and their budgeting approach. The document is relevant for students studying finance or related subjects.

Running head: MANAGE FINANCE
Manage finance
Name of the student
Name of the university
Student ID
Author note

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Table of Contents
Assignment 1...................................................................................................................................2
Part A...........................................................................................................................................2
a. Budget development.........................................................................................................2
b. Developing budget notes...................................................................................................4
Part B...........................................................................................................................................5
1. Statutory requirement to comply with the tax...................................................................5
2. Compliance requirement and liabilities under Corporation Act 2001..............................6
3. Financial management software........................................................................................7
4. Accounting principles.......................................................................................................7
5. Implication of probity.......................................................................................................8
6. Critical dates and initiatives..............................................................................................8
7. Recommendation for inclusion of items...........................................................................9
8. Modified list for internal control.......................................................................................9
Assessment 2.................................................................................................................................10
a. Issues involved in budget....................................................................................................10
b. Variance..............................................................................................................................10
c. Performance........................................................................................................................11

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d. Recommendation................................................................................................................12
e. Financial management process...........................................................................................13
Reference.......................................................................................................................................14

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Assignment 1
Stott’s Pty Ltd is the retail chain conducting its business in Brisbane through 15 stores. It
is one of the largest homeware retailers hat is catered to the requirements of furnishing renovated
and new dwelling all over grater Brisbane. Various products it deals with are bathroom fittings,
mirror, bedroom fittings and the decorative items along with lighting fixtures that has been added
recently. The entity is registered with ASIC (Berk et al., 2013)
Part A
a. Budget development
Sales and profit budget
Particulars 2015/16 Quarter 1 Quarter 2 Quarter 3 Quarter 4
Revenue
Sales
$
16,971,236.64
$
3,394,247.76
$
4,073,096.88
$
4,412,521.44
$
5,091,370.56
(-) Cost of Goods
Sold
$
9,673,604.88
$
1,934,721.22
$
2,321,665.22
$
2,515,137.22
$
2,902,081.22
Gross Profit
$
7,297,631.76
$
1,459,526.54
$
1,751,431.66
$
1,897,384.22
$
2,189,289.34
Gross Profit % 43% 43% 43% 43% 43%
Less: Expenses
Accounting Fees
$
10,000.00
$
2,500.00
$
2,500.00
$
2,500.00
$
2,500.00
Interest Expenses
$
84,508.00
$
21,127.00
$
21,127.00
$
21,127.00
$
21,127.00
Bank Charges
$
1,600.00
$
400.00
$
400.00
$
400.00
$
400.00
Depreciation
$
170,000.00
$
42,500.00
$
42,500.00
$
42,500.00
$
42,500.00
Insurance
$
13,390.00
$
3,347.50
$
3,347.50
$
3,347.50
$
3,347.50
Store Supplies
$
3,749.20
$
749.84
$
899.81
$
974.79
$
1,124.76
Advertising
$
350,000.00
$
200,000.00
$
50,000.00
$
50,000.00
$
50,000.00
Cleaning
$
16,282.24
$
3,256.45
$
3,907.74
$
4,233.38
$
4,884.67
Repairs &
Maintenance
$
64,272.00
$
16,068.00
$
16,068.00
$
16,068.00
$
16,068.00
Rent
$
2,640,508.00
$
660,127.00
$
660,127.00
$
660,127.00
$
660,127.00

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Telephone
$
14,996.80
$
2,999.36
$
3,599.23
$
3,899.17
$
4,499.04
Electricity Expenses
$
26,780.00
$
5,356.00
$
6,427.20
$
6,962.80
$
8,034.00
Luxury Car Tax
$
12,000.00
$
12,000.00
$
-
$
-
$
-
Fringe Benefits Tax
$
28,000.00
$
7,000.00
$
7,000.00
$
7,000.00
$
7,000.00
Superannuation
$
187,020.00
$
37,404.00
$
44,884.80
$
48,625.20
$
56,106.00
Wages & Salaries
$
2,078,000.00
$
415,600.05
$
498,720.01
$
540,279.99
$
623,399.95
Payroll Tax
$
98,705.00
$
19,741.00
$
23,689.20
$
25,663.30
$
29,611.50
Workers
Compensation
$
41,560.00
$
8,312.00
$
9,974.40
$
10,805.60
$
12,468.00
Total Expenses
$
5,841,371.24
$
1,458,488.21
$
1,395,171.89
$
1,444,513.73
$
1,543,197.41
Net Profit (Before
Tax)
$
1,456,260.52
$
1,038.33
$
356,259.77
$
452,870.49
$
646,091.93
Income Tax
$
436,878.15
$
311.50
$
106,877.93
$
135,861.15
$
193,827.58
Net Profit
$
1,019,382.36
$
726.83
$
249,381.84
$
317,009.34
$
452,264.35
Cash flow analysis and GST
Debtor ageing analysis

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Sales per item –
b. Developing budget notes
i. Different expenses incurred in last year including insurance, accountant’s fees,
advertising, and rent were the major expenses and amount of total expenses were
$14,51,931. However, the net profit was $56,362 as the amount of sales revenue was
$33,62,828 (Cooper, 2017)
ii. Using the resources in efficient manner results into good financial management. It
further assists in preparing the budget in efficient manner that will help in minimizing
the variance among the budgeted expenditures and the actual expenditures. In the
given case of Stott’s Pty Ltd existing managed is seemed to use the correct budgeting
approach except for some of the expenses like bank charges, interest expenses and
advertising expenses. In case other expenses big variances were not observed. Hence.

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It can be stated that the budgeting and management approaches of the existing
management is efficient.
iii. Assumptions those were made while preparing the budgets are –
 Inflation rate will increase at 4% per annum and all the expenses will be inflation
adjusted.
 Sales will be increased as per the growth rate for the previous year
 Gross profit will drop by 1% subjected to the estimation that the sales will grow owing to
lower sales price.
iv. Budget must be evaluated and compared with the actual expenses on regular basis to
find out the whether the variance is increasing or reducing. Apart from that while the
budget is prepared, industry scenario, market demand and the economic scenario shall
be taken into consideration.
Part B
1. Statutory requirement to comply with the tax
Various rules and regulation are there those are applicable to the Australian business
entities. These rules and regulations are required to be complied with by the entities for
collection of adequate tax from the profit earning entities. Apart from that, Stott’s Pty Ltd is
accountable for payroll tax, fringe benefit tax, luxury car tax and superannuation tax for the year
2015-16. The company contributes about 9% on total wages paid to the workers towards
superannuation. As stated by Sazonov, Lukyanova and Popkova (2013) in accordance with ATO
(Australian Taxation Office) the entity i required to contribute towards superannuation for the
employees for preserving the earning flow on continuous basis after the retirement period.
Further, the entity is obliged to pay 4.75% towards payroll tax applicable on total wages if the

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wage amount exceeds $850,000. In addition to that the entity is also liable towards payment of
fringe benefit tax as well as luxury car tax. Prescribed rate for luxury car tax as per ATO is 33%
(Ato.gov.au, 2018).
Stott’s Pty Ltd is further required to make payment towards FBT and towards luxury car
that is made applicable by Australian government for preventing number of dishonest measures
applied by the organization. Tax applicable to luxury car is calculated through taking into
consideration the threshold provided by ATO and the same is taxable at 33%. Australian
government further imposed the FBT on the entities in order to minimize fraudulent payments
and compensation paid to the employees.
Tax computation
Particulars 2015/16 Quarter 1 Quarter 2 Quarter 3 Quarter 4
Wages & Salaries
$
342,500.00
$
415,600.05
$
498,720.01
$
540,289.99
$
623,399.95
Superannuation tax
$
30,825.00
$
37,404.00
$
44,884.80
$
48,626.10
$
56,106.00
Payroll tax
$
16,268.75
$
19,741.00
$
23,689.20
$
25,663.77
$
29,611.50
company tax
$
1,055,116.73
$
16,908.57
$
93,473.64
$
115,315.06
$
158,997.91
Total tax
$
1,102,210.48
$
74,053.57
$
162,047.64
$
189,604.94
$
244,715.40
2. Compliance requirement and liabilities under Corporation Act 2001
Entities registered under ASX are required to comply with the regulation listed below in
accordance with the requirement of Corporation Act 2001 –
 The entity is required to prepare financial statement in compliance with prescribed
accounting standards
 Capital of the entity shall be used in effective way to pay off the liabilities

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 The entity is required to issue actual records with regard to financial performances to the
debtors to enable them analysing the financial viability of the entity (Legislation.gov.au,
2018).
3. Financial management software
As mentioned by the entity that the existing software is not able to deliver the analysis of
revenues and the expenses and the process for estimating the profit is not easy, it shall opt for
better software that will be able to solve these issues. Hence, it may opt for XERO or MYOB
that will be efficient in doing the task which the existing software is lacking.
XERO – XERO is the cloud computing g software and is capable of reconciling, sending quotes
as well as invoices, creating claims for expenses and recording receipts. Further, the software is
simple and easy for using and it allows the users extending the features to enhance the usefulness
from every aspect. Further, this software can be installed by the entity irrespective of its software
history (King, 2015)
MYOB – this software is simple to use and it is widely used by the SMEs. It is powerful and is
focused on the procedures of business and the work flows. Further, the software is GST ready
and is able to comply with GST (Curtis, 2015)
Among the 2 software mentioned above, Stott’s Pty Ltd shall opt for MYOB software as
it is cheaper, simple to use and easy in installation as against XERO.
4. Accounting principles
a. Matching principle – it is one of the basic guidelines used in accounting. It directs the
entity in reporting expenses under the income statement in the same period in which the
associated revenues are earned. It is related to accrual basis of accounting as well as with

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the adjusting entries. Matching principle is crucial for preparation of budget as the
expenses is charged in accordance with determination of cost (De Simone, Ege &
Stomberg, 2014)
b. Account groups – it involves grouping of similar kind of accounts into the single group. It
assists in segregating the groups of accounts that is required for budget preparation.
Reason behind that is if items related to incomes are added with expenses, the entire
budget will go wrong (Sazonov, Lukyanova & Popkova 2013)
c. Time periods – time period refers to differentiating accounting transactions into quarter,
month or year. If the accounting transactions are not differentiated under proper periods,
data and amount of one period will be included under another period’s data (He & Shan,
2014)
5. Implication of probity
The significance of the term probity is relative and cannot be defined under the economic
and managerial framework. It protects the community and takes care of their interests and rights
for the entire group of people. It protects the right of the users and helps in knowing the entity’s
actual position.
6. Critical dates and initiatives
Most appropriate time for preparing the next year’s budget is after issuance of previous
year’s budget and its comparison with the actual expenses and incomes. Proposal must be
consider the following –
 Budget must be prepared using the new software

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 Various assumptions shall be made by the accountant taking into account the appropriate
bases. It will enable to narrow the gap among actual figure an budgeted figure (Henttu-
Aho & Järvinen, 2013)
7. Recommendation for inclusion of items
Various items those are to be introduced while preparing the budget for the next period
are as follows –
 Improving privacy and safety to reduce the extent of manipulation that may take place
while budget is prepared.
 Accounting system shall be implemented with the objective of processing the budget
accurately
 Using of fair and realistic valuation with the objective of reducing the unfavourable
variances (Droms & Wright, 2015)
8. Modified list for internal control
Audit trail can be used to trace the associated items with the transaction reported by the
entity. Following recommendations are provided to maintain the internal control –
 All the transactions shall be dated and numbered properly that will enable easy access
 Inventories as well as stocks shall be verified physically that will reduce the level of
fraud.
 Access to financial data shall be properly authorised (Hope & Fraser, 2013)
 Regular reconciliation of financial records to minimize misstatements, frauds and errors.

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Assessment 2
a. Issues involved in budget
i. Significant issues
Most significant issue involved with Stott’s Pty Ltd is gross margin viability. As the
country is passing through recession impact on the retail sector is prominent as it will reduce the
spending power of the customers. Further, though the sales over the years is in rising trend as
discounts offered is too high it is eating up the profits. Further, the interest is at rising trend that
will have adverse impact on cash flows (Kelly, 2015)
b. Variance
i. Budget variance

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ii. Reason of variance
Though the sales over the years are showing favourable variance as discounts offered is
too high it is eating up the profits. Further, the negative impact of recession increased the prices
of raw materials that increased the COGS. Moreover, the rising trend of interest will have
adverse impact on cash flows. Unfavourable variance in store supplies is due to the increase in
cost of resources. Owing to these reasons the 1st quarter budget for 2015 has significant variance
with actual figures (Andre, Lam & O'Donnell, 2016)
c. Performance
Comparison of the financial performance

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Though sales increased, owing to discounts and promotional offers granted to customers
gross margin has been reduced. Further, owing to sluggish economic growth payment to the
employees are considerably high as against the industry benchmark of 11% of sales. Additional
payment will reduce availability of cash to finance for the capital projects. Owing to reduction in
demand, additional expenses made on account of advertising. However, inspite of inflation
Stott’s Pty Ltd was able to generate positive profit margin.
Ratios –
Debtor days and impact on cash flow –
d. Recommendation
Stott’s Pty Ltd is required to evaluate the performance of both past as well as present
budget for analysing the spending trends at different point of times. Further, if th company works

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on short term assignments it will require revision in the budget for meeting the short term
objectives. If the entity plans for introducing new product budget revision is required until
justification received for real figures related to production and sales.
e. Financial management process
The company expanded in context of providing credit to large extent to its customers and
hence, must reduce the credit period. Hence, issuance of transparent as well as proper invoice
through usage of automated system of credit management is required for keeping track of
customer’s account. In addition to that, the entity shall obtain the insight regarding business cost
on everyday basis. Under such circumstance, the entity may think of reducing the wages and
salaries to make it in line with the industry benchmark that will save additional cost. Finally, the
entity shall implement MYOB software to track the required data and save the cost that in turn
will enhance the process for financial management.

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Reference
Andre, S.M., Lam, M. & O'Donnell, M., (2016). Budgetary Slack: Exploring the Effect of
Different Types, Directions, and Repeated Attempts of Influence Tactics on Padding a
Budget. Academy of Accounting and Financial Studies Journal, 20(3), p.147.
Ato.gov.au., (2018). Working out the LCT on an import. [online] Available at:
https://www.ato.gov.au/Business/Luxury-car-tax/Working-out-the-LCT-amount/
Working-out-the-LCT-on-an-import/ [Accessed 08 August. 2018].
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corporate finance. Pearson Higher Education AU.
Cooper, S., (2017). Corporate social performance: A stakeholder approach. Routledge.
Curtis, V., (2015). MYOB Software for Dummies-Australia. John Wiley & Sons.
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Revenues And Expenses. American Accounting Association. In Annual Meeting and
Conference on teaching and Learning in Accounting. Atlanta, Georgia, August (pp. 2-6).

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https://www.legislation.gov.au/Details/C2018C00275 [Accessed 8 Aug. 2018].
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