Assignment task: You are an assistant Business Consultant at Simplicity Financial and Business Advisory Group (SFBAG) Pty Ltd. You are assigned to work with new clients Petra Trail & Greg Change Partners (PTGCP). Their Business is in the renewable energy industry.
Client information and data
Petra and Greg have been operating their business for the past 5 years. They commenced on 1 July 2018. They have been looking at expanding their business and have been considering adding an additional partner or converting their current business structure to a company.
They are not sure which type of company is more lucrative as they anticipate further growth in the business. The business structure is currently a partnership between Petra and Greg, and they employ 25 people.
Petra and Greg are also worried about their cash flow in the short term. They need to see if they can remain solvent until they can transition their partnership to the new business structure. The new structure will be based on your advice.
Below is an extract of their budget:
July August September
Sales 240,000 302,000 302,000
Purchases 64,000 80,000 100,000
Wages Gross 80,000 84,000 88,000
Provision for holiday pay 8,000 8,400 8,800
Repairs & maintenance 5,200 6,000 7,000
Insurance 9600
Rates 660 660 660
Depreciation 1,600 1,620 1,620
Advertising 400 400 400
Salaries Gross 16,000 16,000 16,000
Audit Fees 6,000 6,000 6000
Other Expenses 3,600 2,400 2,400
Plant replacement 10,000 - -
Additional Information:
1. Sales in April were 280,000, for May $260,000 and for June $200,000
2. 60% of sales were collected in the month after sale, 30% in the second month after the sale and 10% in the third month after the sale
3. Purchases in June were 80,000. These are paid in the month after the purchase and are subject to a 5% discount
4. Insurance is paid annually in August and the amount is expected to agree with the budget
5. Rates balance is payable in March.
6. PAYG tax deductions are made at 30% of gross wages and salaries and remitted to ATO in the month following the payment of wages. PAYG deductions for June amounted to $30,000
7. There are no holidays taken in the quarter ended 30 September
8. Other payments are made in the month indicated above
9. The bank account is estimated to be $10,000 credit on 1 July
10. PTGC Partnership is registered for GST. The GST Clearing Account (the amount owed to the ATO) is estimated to be $6,000 credit on 1 July. This will be paid in July. Input tax credits do not apply to wages and salaries
11. The bank balance as at 30 September was $179,320
Using the extract from the budget, and additional information provided, prepare the projected September quarter cash budget as per SFBAG Pty Ltd policies and procedures. (Show GST and input tax credits separately. Show full details for each month).