Financial Management Report: ABC Company and Downer Ltd Analysis

This report provides a comprehensive analysis of financial management principles, focusing on the financial data of ABC Company and Downer Ltd. The report begins with an introduction and then delves into budgeting procedures, reviewing profit and loss statements, and identifying applicable taxes for ABC Company. It then analyzes resource allocation strategies, including the determination of costs for new products and the preparation of budgets. The report also addresses measures to prevent the misappropriation of funds, contingency planning, budget applications, compliance in the workplace, and the importance of an audit trail. The analysis includes detailed financial data, variance analysis, and strategic recommendations for optimizing financial performance, resource allocation, and mitigating financial risks. The report covers various aspects of financial management, providing valuable insights into financial analysis and decision-making processes.

Running head: FINANCIAL MANAGEMENT
Financial Management
Name of the Student:
Name of the University:
Author’s Note:

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Table of Contents
Assessment 1...................................................................................................................................2
Introduction..................................................................................................................................2
Budgeting Procedures..................................................................................................................2
Reviewing the Profit and Loss Statement....................................................................................3
Taxes Applicable.........................................................................................................................4
Assessment 2...................................................................................................................................5
Allocation of Resources...............................................................................................................5
Determination of Cost of New Product.......................................................................................6
Preparation of Budget..................................................................................................................7
Assessment 3...................................................................................................................................9
Measures for Misappropriation of Funds....................................................................................9
Contingency Plan.........................................................................................................................9
Budget Application....................................................................................................................10
Compliance in Workplace.........................................................................................................10
Audit Trail.................................................................................................................................11
Reference.......................................................................................................................................12

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Assessment 1
Introduction
The main purpose of this assessment is to analyze the financial data for ABC Company
which is engaged in manufacturing activities. The company allocates different resources to the
manufacturing activities and tries to maintain the costs which arises during the manufacturing
process. The assessment will also be reviewing the reasons for the profit and loss which is earned
by the company. In addition to this, the assessment will be identifying the different taxes which
are applicable to the business of ABC Company.
Budgeting Procedures
The production area of any manufacturing concerns is the most important area of the
business as it is associated with the core activities of the business. The production area of the
business is to be considered for the assessment. The business can use budgeting techniques in
order to identify the potential costs and also the potential revenue of the business. The budgeting
techniques are used by business to forecast the standard costs which the business will incur in
manufacturing activities. On the basis this budget, actual costs are maintained so that no variance
arise (Hope and Fraser 2013). The production and sales budget are prepared by the production
department of ABC Company which is shown below:
Statement Showing Production Budget
Particular Standard Actual Variances
Total revenue (A) $ 5,00,000.00 $ 6,00,000.00 -100000
Salary and wages $ 80,000.00 $ 90,000.00 10000
Factory Expenses $ 20,000.00 $ 25,000.00 5000
Direct expense $ 10,000.00 $ 8,000.00 -2000
Insurance $ 20,000.00 $ 27,000.00 7000
Supervisor's Salary $ 30,000.00 $ 30,000.00 0

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General expenses $ 10,000.00 $ 15,000.00 5000
Cost of raw materials $ 50,000.00 $ 60,000.00 10000
Maintenance and repairs $ 30,000.00 $ 45,000.00 15000
Miscellaneous expenses $ 60,000.00 $ 50,000.00 -10000
Total Cost (B) $ 3,10,000.00 $ 3,50,000.00 40000
Profit (A-B) $ 1,90,000.00 $ 2,50,000.00 60000
The above table shows the production budget of ABC Company and the different cost
which the company incurs in the production process. The total cost as per the standard is $
310000 and the actual expenses which is incurred by the company is $ 350000. The total revenue
of the ABC Company as per actual and standard figures are $ 600000 and $ 500000 respectively.
Financial data of the company can be used to estimate the standard and they act as a benchmark
for comparison with the actual results. The profit of the company can be determined with the
help of actual budget (Grossi, Reichard and Ruggiero 2016). The financial data can also be used
to compute variances between actual results and standard set.
Reviewing the Profit and Loss Statement
The above stated profit which is obtained by deducting the total expenses from total
revenue earned by the business. As per reviewing the policy and income statement of the ABC
Company, it can be stated that there are various reasons for the profit or loss as earned by the
business. Firstly, the company has followed the policy of sales maximization which requires the
company to increase the sales of the business (Mascle and Gosse 2014). With the increase in
sales the overall revenue of the company also increases which has resulted in higher profits as
shown in the table above. Secondly, it is a common known fact as the sales volume increases so
does the variable costs which are associated with it. The company has tried to control the
variable costs though the company is unable to meet the standard requirements. However, the
company has been able to decrease the costs marginally in comparison to sales volume increase.

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This has also resulted in increase in profits of the company. Thirdly proper supervision by the
management in the operations of the company will reduce wastage of resources and also improve
the allocation and utilization of resources to productive activities.
Taxes Applicable
In the case of ABC Company which is a manufacturing concern, the two most prominent
taxes which will be applicable are income tax and Goods and Service tax. The income tax is
charged on the net income of the company subject to various deductions and exemptions as per
the provisions set by Australian Tax Office (ATO). The income tax will be charge on the taxable
income which is computed after allowing all deductions and exemptions. On the other hand,
Goods and Service tax are charged on the goods manufactured by the company (Palil et al.
2013). Goods and Service Tax (GST) rate which is applicable in Australia is 10% and the current
income tax rate is 30% on individual and companies in Australia (Ato.gov.au. 2018). If the
company plans to engage in export of goods or import of raw materials than the company will
further be subjected to duties which are related to imported and export. The income tax as well as
Goods and Service tax are universally applicable in Australia and the rate are fixed in
consideration to geographical variations. However, the tax on certain goods and services are
subjected to lower rates and exemptions as well as per the provisions.

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Assessment 2
Allocation of Resources
The main purpose of this assessment is to analyze the financial statement of a company
and identify the process in which the company allocates resources to different items. For the
purpose of this assessment, Downer ltd is selected. Downer ltd is engaged in providing services
various services which are rail, construction, transport and utilities, industrial plants and mining
activities and some other activities as well (Downer Corporate Site 2018). It is thus clear from
the various services provided by the company has a diversified line of services which requires
appropriate allocation of resources of each activity. The allocations of funds and resources
should be in such a way that the most revenue generating line of services is allocated maximum
amount of resources and funds so that the company earn increased amount of revenues. Downer
ltd can use Activity based costing technique to ensure that proper allocations of funds to various
product line. As in the case of Downer ltd the construction, power generation and transport
business line is thriving. The company needs to allocate a major portion of the funds to these
sectors as this will definitely increase the overall profitability of the company. Downer ltd has
earned around 27.5% of the total revenue from transport business line, 25.6% out of the total
revenue from construction activities as engaged by the company in the year 2017 as per the
annual reports of the company (Downer Corporate Site 2018). These line of services, show
further scope of development and therefore the company needs to allocate more funds to such
product line in order to increase the overall profitability of the company.
Statement showing segregation of revenue ($ in millions)
Particulars Transport Mining Rail Utilities EC&M Total
Revenues Earned $ 2,091.10 $ 1,250.80 $ 467.10 $ 1,974.20 $ 1,517.30 $ 7,300.50

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The revenue earned by Downer ltd and its segregation is shown in the table above. It can
clearly be seen that the company earns maximum amount of revenues from transport which is $
2091.91 million and from utilities which include power generations which is $ 1974.20 million.
The company should focus on such sectors using ABC analysis which identifies activities on the
basis of revenue generating capabilities of product or service line and classify them in category
A, B, C basis respectively (Hilton and Platt 2013).
Determination of Cost of New Product
The company can add a new product line to further diversify the current portfolio which
the company is following. The company can diversify into manufacturing business line and
manufacture iron and steel which will also be providing assistance to company’s other service
line. The company will be needing to establish a factory and also incurs certain installation
expenses of machinery and equipment. The estimated cost which the company will be incurring
in new product development and the various estimated costs which the company is likely to incur
are given in a table below:
Statement showing Cost estimating of manufacturing business ($ in million)
Particulars Amount $ Amount $
Raw material cost $ 1,200.00
Salaries and wages $ 0.35
factory expense $ 0.75
Mining and explorations $ 60.36
Installation and maintenance $ 0.15
Repairs and renewals $ 0.25
Depreciation $ 1.20
Start-up expenses $ 0.45
Advertisement $ 1.04
Distribution expenses $ 100.00
supervisor's salary $ 0.50

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Rent $ 1.50
General expenses $ 0.35
Miscellaneous expenses $ 0.10
Total cost $ 1,367.00
As per the current fund and resource availability the company can allocate the
unallocated portion of funds as shown in the financial report of Downer ltd to the new product
line. It can also reduce the resources and funds which is currently being used in activities which
is not so much profitable. The company can also take loans from banks and financial institutions
to finance the new product. The above table shows that there are certain costs which are of
regular nature and fixed such as rent, general expenses and certain costs are such that they are
related to the new product development like mining and exploration cost, installation, cost of raw
material.
Preparation of Budget
The budget needs to be prepared by the company considering the policies and
requirement and goals of the company. A budget reflects the costs and revenue which the
business expects to earn during a year (Klychova, Faskhutdinova and Sadrieva 2014). There are
various kinds of budget which are production budget, cost budget, master budget and others as
well. While preparing a budget the following factors are to be taken into consideration which are
given below:
1. The policies and goals of the company which also includes objectives of the company.
Suppose if the company’s policy is cost reduction then the budget will be prepared with
controlled costs.

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2. The company also has to check past year’s cost and revenue figures on the basis of which
an educated estimated can be made.
3. The budget as prepared by the company is also affected by the changes in market and
policies and moreover the standard should be accurately set which could measure the
performance of the company (Chapman, Kern and Laguecir 2014).

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Assessment 3
Measures for Misappropriation of Funds
Methods of Misappropriation Measure
Employee in many cases engages themselves
in unethical activities such as
misappropriation of funds of the company
(Dellaportas 2013). Employee can steal the
money which has been allocated by the
management for productive purposes.
The only way to stop misappropriation of
money is by establishing an effective and
efficient internal control. The management
needs to review every record, ledger, cash
books to ensure that no discrepancies exist in
the records. Proper Supervision and effective
control can prevent such misappropriation
from taking place.
Employees can also misappropriate resources
of the business such as raw materials or
finished goods as well for personal gain
(Resnik et al. 2015).
In such a situation the management should
keep proper records of the inventory of the
company and also introduce routine checks
and verify whether such a inventory has been
misappropriated or not.
Contingency Plan
Contingency plans are implemented when a certain future event occurs and a situation
arises. A company while preparing a budget always incorporates a contingency plan which will

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be helpful to deal with the circumstances if the uncertain future event occurs (Ruiz-Torres,
Mahmoodi and Zeng 2013). Suppose a company is facing a legal case whereby if the company
loses the case then it has to bear a certain compensation which will be an additional cost in the
circumstances that the company loses the case. On the occurrence of the unpredictable case
results, the company needs to prepare a contingency plan prior to the case results and implement
the same when case is lost. The company can keep aside a part of the funds as provisions and
show the same in the budget. In case the case results are in favor of the company, the provision
can be written off (Calareso 2013).
Budget Application
The budget as prepared by the management has be distributed among the different
departments such as sales, production, distribution, marketing. The brief details of the budget can
be explained in a departmental meeting where the management can provide a presentation of
what are the key aspects of the budget and what areas need to be focuses and what are the
responsibilities of each departments. The meeting will also provide a scope of instant feedbacks,
queries, suggestions from various departmental heads and thus the budget will be understood by
every departments. Moreover, the responsibilities of each departments will be further explained
to workers by their respective departmental heads.
Compliance in Workplace
The compliance of legal regulations and rules in a workplace is very important for overall
control and management of the company (Molina-Jimenez, Shrivastava and Strano 2012). The
area of compliance which the management must ensure are as follows:
1. The management should ensure that the company complies with the rules of the
government such as the provisions of the Corporation act and the rules which are in force

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in the country (Sadiq and Governatori 2015). The management needs to ensure that all
the activities of the management are legal and in accordance with the corporate rules in
place in the country.
2. The management can ensure that the company complies with the different rules and law
which are associated with the workplace such as anti-harassment rule, fairness and anti-
discrimination rules. These rules can be implemented effectively and a policy of
compliant can be incorporated to reveal any individual who violates such rules.
3. The management can ensure that the company does not indulge in any activities which
are forbidden by the law such as monopolistic practices, defrauding creditors.
Audit Trail
Audit trail is a systematic review of all the entries recorded in the books of accounts so
that if any discrepancies has occurred can be revealed (Readshaw, International Business
Machines Corp 2013). In case of sales transaction, the management can check all sales records
such as receipts, vouchers, ledgers, journal entries, discount offers. Then the management can
check the statement of profit and loss account and compare the figures with that of the vouchers
and receipt and then check the budget as well to identify any discrepancies.