ASSESSMENT 1
Instructions for Students
Please read the following instructions carefully
- This assessment is to be completed according to the instructions given by your assessor.
- Students are allowed to take this assessment home.
- Feedback on each task will be provided to enable you to determine how your work could be improved. You will be provided with feedback on your work within 2 weeks of the assessment due date.
- Should you not answer the questions correctly, you will be given feedback on the results and your gaps in knowledge. You will be given another opportunity to demonstrate your knowledge and skills to be deemed competent for this unit of competency.
- If you are not sure about any aspect of this assessment, please ask for clarification from your assessor.
- Please refer to the College re-assessment and re-enrolment policy for more information.
Assessment 1 (Prepare budgets)
Performance objective
This assessment requires you to review available financial information and establish a budget for the organisation.For this task you are required to study a case study of an organisation to understand financial condition and legislative & financial management requirements for the company.
Assessment description
This assessment requires you to determine the requirements to undertake budgeting, financial forecasting and reporting requirements for an organisation. You will also need to review the case study provided and prepare a budget (in electronic spreadsheet format) and budget notes for distribution and implementation in the organisation.
Procedure
1. Analyse the case study information and write summery of the current status of the company.
2. Analyse the case study information (including business plan summary and previous financial data) and complete the following.
a. Sales and Profit budget (including detailed expenses) budget for 2011/12 by department by quarter.
b. The cash flow result per quarter of the GST after adjusting the GST collected by the allowable GST tax credits.
c. The anticipated aged debtors summary at the end of each quarter.
d. Ensure each budget you prepare complies with the organisational and policies and procedures as provided.
e. Develop budget notes/comments which include:
i. identification of reasons for previous profits and losses
ii. your comment on the effectiveness of existing financial management approaches
iii. all assumptions and basis that have been made or used to form budgets
iv. any relevant notes regarding implementation and monitoring of budget expenditure.
3. Identify the current statutory requirements for tax compliance and list and calculate the tax liabilities for Houzit Pty Ltd under taxation legislation.
4. Identify the current compliance requirements and liabilities for this organisation under the Corporations Act 2001.
5. Review commercially available financial management software to select the most suitable software for Houzit Pty Ltd. and outline the reasons that lead you to this recommendation.
6. List the critical dates and initiatives that will require or generate resources for Houzit Pty Ltd in the next financial cycle.
7. List the items you would recommend for inclusion in the budgets for Houzit Pty Ltd.
8. List the new or modified internal controls that could improve risk management for Houzit Pty Ltd including the maintenance of audit trails.
Specifications
You must provide:
- a completed annual budget in a single spread sheet with a separate sheet for each budget component
- budget notes and question answers in a written format.
Your assessor will be looking for:
- evidence that you understand the required legislative requirements
- evidence that you can identify suitable software for financial management
- evidence you have reviewed the case study information provided by submitting an appropriate budget with budget notes
- evidence that you have clearly communicated information regarding the budget and correctly responded to a series of questions.
Case study
You have recently been appointed as the business manager of Houzit Pty Ltd having been a store manager for the past three years. Houzit Pty Ltd is a 15 store retail chain located in Brisbane.Houzit is the leading homewares retailer, catering to the growing need for furnishing new and renovated dwellings in the greater Brisbane area.
The assortment on offer of bathroom fittings, bedroom fittings, mirrors and decorative items together with the recently added lighting fixtures has positioned Houzit as a leader in homewares retailing in Australia. Houzit has grown over the past five years from a single store to the current chain. Houzit prides itself on superior after sales service which has been a key reason for the continued growth in sales and corresponding profit increases. Today Houzit employs over 150 staff.
Houzit Pty Ltd is a proprietary limited company (ACN 34 765 234 02) registered with the Australian Securities and Investment Commission. The registered address is with Houzit's solicitors (Langs Lawyers, 535 Queen Street, Brisbane, QLD 4000) and the principle place of business is 505 Boundary Street Spring Hill Brisbane QLD 4000.
Houzit Budgeting Policy and Procedures
Budget development process
The standard process for developing budgets will follow the following steps:
1. Establish the budget objective.
2. Gather prior period data.
3. Discuss prior period information and anticipated changes in the budget period with stakeholders.
4. Research relevant external information.
5. Incorporate identified trends to determine assumptions and parameters.
6. Prepare budgets in standard formats.
7. Submit budgets for approval.
Budget objectives
Houzit prepares budgets to meet various company objectives. Budgets are prepared:
- for a specific expansion of the business activities:
? business case to be prepared covering a cost-benefit analysis, market research report and summary profit and investment expectations
- to outline a specific debt reduction initiative:
? company-wide summary of profit expectations, planned debt and equity funding arrangements, CAPEX plans summarised
- annually to cover the next financial year:
? for the 12-month period from the beginning to the end of the financial year
? budget to include four quarter milestones in line with seasonal trends identified from prior year data
? initial preparation includes a preliminary overview of the financial year ahead
? sales budget for next year to be prepared by department by quarter
? profit budget (including detailed expenses) for the next year to be prepared by quarter
? cash flow effect of the GST payable per quarter to be prepared (scheduled compliance payment date is the 21st day after the end of the quarter)
- To satisfy the statutory requirements relating to the current and short-term solvency of the company:
? three monthly rolling forecast of cash flows to be prepared
- To qualify the strategic plans for the next 3-5 years planning cycle:
? profit and CAPEX budget to be prepared.
Budget variances and schedules
- Key performance indicators that should be closely monitored and reported on include variances to:
? total sales
? gross profit (GP) %
? wages andsalaries as a % of total sales
? total expenses as a % of total sales
? net profit in dollars
? net profit as a percentage.
- Budget variances will be reported using the standard format provided in this policy and procedures document.
- Budget variances must be completed within five working days of quarter end.
- Actual results for the month will be provided by the accounting information system.
- An analysis of the variance between the actual and the budget must include $ and % variance.
- Report with explanations and recommendations to be complete within seven working days of quarter end and be given to the CEO.
- Analysis and investigation of variances will include the following priority:
1. Establish the primary causes for variances to key performance indicators of total sales, gross profit % and net profit $.
2. Establish reasons for those individual items in the variance report that represent the greatest $ variance.
3. Establish reasons for those individual items in the variance report that represent the greatest % variance.
- Schedules relating to compliance due dates must be prepared and monitored by the accountant. Managers supplying information to the accountant regarding the compliance schedule must submit it at least five working days prior to the due date deadline.
ASSESSMENT 2
Assessment description
You will need to review the provided current case study information and compare it to the budget you established in Assessment 1.After evaluating these you will need to report on the following:
- significant issues
- variances from budget
- comparative performances
- recommendations for ongoing financial viability
- evaluation of financial management processes.
Procedure
1. Analyse the case study information and develop a variance report based on the format and template provided by Houzit.
2. Examine the sales and profit budget, cash flowbudget and debtor ageing summary to identify the following:
a. Issues:
i. Identify, describe and prioritise significant issues that are evidenced in the provided case study information and describe reasons or causes of these issues. Include in this issues of financial probity that you have identified or considered when monitoring these budgets.
b. Variances:
i. Complete an actual-to-budget variance report, using the template provided in the case study.
ii. Identify variances by comparing actual results with the established budget, and provide reasons why these variances may have occurred.
c. Performance:
i. Compare financial performance of the organisation (according to financial information provided) to industry benchmarks for this organisation in line with the retail trade sector.
ii. Determine a trend of the average debtor days and the impact to the cash flow of Houzit.
d. Recommendations:
i. Outline your recommendations for ongoing financial viability for the organisation, based on your assessment of the issues,reasons for variances and organisational performance you have identified (Steps 1-4).
ii. Include in this section your plans for a revised budget, effectively managing contingencies and issues that have been identified in feedback and monitoring of the budgets.
e. Evaluation:
i. Provide a summary review of the financial management processes in place for the organisation, in light of your assessment of the issues, reasons for variances and organisational performance you have identified.Include in this section any recommendations you have for modifying management processes.
You must provide:
- a complete actual-to-budget variance report
- a completed report detailing the issues, variances, performance, recommendations and evaluations identified from the financial information for Houzit Pty Ltd.
Your assessor will be looking for:
- Evidence that you reviewed the provided case study information to develop an evaluative report concerning the progress of the budget.
Case study
Soon after the end of the first quarter, Jim Schneider the CEO of Houzit, asked you to follow up with Celina Patel, Houzit's accountant, to see how the actual results compared with the budget you had prepared three months ago. You explained that you had a meeting with Celina that afternoon to get the results and that you would report back as soon as you had done some analysis.
The key questions that the board was most interested to have answered from the budgets and the variance reports were:
- ‘To what extent do the reports support the view of the board that Houzit is financially viable?'
- ‘Will we be able to maintain our gross profit margins in the predicted downturn?'
Jim and you both agreed that it had been a tough quarter with the economy still in recession and the impact this was having on the retail sector. Banks are raising interest rates in line with the increased upward international pressure and Houzit has a significant part of their loan funds on a variable interest rate which changes directly with market conditions. Jim was pleased that the sales seem to be holding up reasonably well as first quarter results are generally impacted by factors relating to public and school holidays but he was concerned about the discounts that had to be given to generate these sales.
‘That's going to hurt us at some point'Jim said. ‘Just a pity we could not get into some national magazines this quarter to promote the store offers. I'm sure that would have helped us exceed the budgets you set. I guess we will just have to spend that advertising money in the next quarter' Jim said.‘I still think we are running our wages and salaries a bit high. The industry benchmark for wages and salaries is close to 11% of sales'
Jim went on to explain,‘One of our contingency plans in a slowing economy is to reduce our exposure to debt by applying our profits to the repayment of the long term debt. This will help reduce the interest burden on the business and take some pressure off the diminishing profits.It would also be of interest to determine the impact that our debtors has on the cash flow of the business from 2010/11.'
You are a beneficiary of the company's profit bonus scheme that is based on the profitability of the company's financial reports which you are required to prepare. You also prepare the departmental reports that form the basis of the performance review of the managers. You are the manager of the finance/administration and prepare this department's report as well.
You met that afternoon with Celina and she provided you with the following report on the actual results for the quarter ended 30 September 2011.
Attachment:- Assessment.rar