NTM00286 Elaine

BSBFIM601 Manage Finances NTM00286 TZU-YUN LIU

Assessment Task 1

Prepare budgets
1. Identify the current statutory requirements for tax compliance and list
and calculate the tax liabilities for Houzit Pty Ltd under taxation
legislation.

 Income tax: this is the tax that every organization and individual has to pay on his net
income of the year.
 GST: THIS TAX IS Paid by the business which provide goods and service. This tax could be
different according to the sort of goods and service and some things could be the free
from this tax.
 Company tax: This tax is paid by the company on the assessable income and tax rate is
fixed which 30% of income is.
 Superannuation: This tax is paid by the organization on the behalf of the employee and it
is calculated by the organization's payroll system
 Following are the calculated tax of the organization
 Income tax: 436,878
 Payroll tax: 98,705
 Superannuation: 187,020
 Fringe Benefits Tax: 28,000
 Luxury Car Tax: 12,00

2. Identify the current compliance requirements and liabilities for this

organization under the Corporations Act 2001.
Under corporation act 2001 organization has to keep the statement of financial
performance and statement of financial position with them. This are some record which are
required to keep
1. Financial statement
2. Cash record
3. Sales/debtor record
4. Creditors record
5. Wages and superannuation record
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3. Review commercially available financial management software to select
the most suitable software for Houzit Pty Ltd. 

Ensure you diagnose software options by comparing two commercially
available software titles against the capabilities of the existing technology
for the organisation and against the prioritised requirements, and outline
the reasons that lead you to this recommendation. 

There is a range of software packages available for use in the financial management field
and it is important that a finance manager is able to measure them against the needs of the
business. Properly installed and implemented financial management software can
contribute many benefits to both the business and the financial management role,
including:
● Improved decision-making –detailed reports that can be customised to
management requirements.
● Better cash flow analysis –relevant reports promote better management of cash.
● Accurate information – fewer opportunities for errors in posting and recording.
● Greater control – access to real-time aspects of the organisation’s critical financial
information.
● Improved productivity – less work with the input being entered just once for reporting,
analysis and planning.
● A basis for growth – it can expand with the organisation’s growth including more users,
more features and more transaction processing capacity.
Some accounting software suppliers provide either downloadable demonstration packages
on the internet or inexpensive demonstration disks for customer trial. There are also some
accounting packages available through freeware or shareware on the internet and
assistance on commercially available record-keeping software can also be obtained via the
ATO website through softwaredevelopers.ato.gov.au.
Some example requirements that an organisation may have are:
● the system must be fully integrated, e.g. must have the capacity to record all sales and
purchases through inventory and accounts payable and receivable ledgers, must have a
payroll and preferably an integrated fixed asset component
● the system should be capable of recording separately the income from the various sales
sectors – mail orders, over-the-counter and internet orders
● that it must generate reports that comply with reporting requirements including business
activity statements, fully classified final reports and payment summaries
● the system should be able to be networked to accommodate the various activities of the
business
● staff will have access to comprehensive training on use of the system and the new
processes that will be developed to accommodate the changes.
Other important concerns when choosing software centre around:
● the scalability of the software (does the software allow for growth and other changes in
your organisation)
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● the transferability of the data (how easy is it to get existing and new data into the system,
how simple is it to extract and export data when required)
● the speed of implementation of the software (how easy is it to install for all users, how
much training will be required, how much ongoing support will be required)
● the cost of the software to install and upgrade and any additional costs required for
support and assistance.
Common commercially available software in use for managing financial information include
MYOB, QuickBooks, Peachtree, NetSuite, Cougar Mountain, Bookkeeper, Simply
Accounting, and Bottom Line Accounting to name a few.

4. Explain how you can apply the following principles of accounting in

developing the budgets required for this task:
a. matching principle
b. account groups
c. time periods
Matching principle
Sound financial decision-making can only be achieved if a business is able to measure and
report accurately on its profitability. Profitability for a business directly determines the
financial strength, sustainability and growth capacity of the business. Profitability is
calculated as the amount remaining after revenues have been offset by all the expenses
incurred in earning that revenue. So, it is vitally important that for each accounting period,
all the revenues earned are identified and they are offset by all the associated expenses
incurred in earning that revenue. This business need has led to the development of the
matching principle. The matching principle helps avoid the possibility of misstating the net
income for a given period. This principle states that expenses should be ‘matched’ against
the revenues that they generated and should be recorded in the same period in which the
revenue is earned.
The matching principle becomes an issue when we wish to report on the financial
performance of a business for a specific period. This specific period in accounting is created
under the accounting period convention. The accounting period convention incorporates
the desire by decision-makers to receive regular and comparable updates on the
performance of their business on a per month, per quarter or on an annual basis (i.e. for tax
purposes). The shorter time periods of performance assessment allows internal and
external stakeholders to make adjustments to their strategy in relation to the business and
to compare ‘like-for-like’ financial results over a similar period of time. The matching
principle ensures that the financial reports for these short accounting periods accurately
measures the net income.
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Businesses that adopt these principles are able to more accurately evaluate their actual
profitability and financial performance for specific periods of time by eliminating the
disparities in the accounting entry timings.
Account groups
Accounting allocates all financial transactions between five account groups. They are:
1. Assets – items of value to the organisation; usually cash or items that can be turned into

cash. 


2. Liabilities – money/obligations owed to other organisations. 


3. Equity (or owners’ equity) – the owner’s rights to the business. It is what would be left

over if a business or organisation sold all the assets and paid off all liabilities. 


4. Revenue – all forms of income. 


5. Expenses – costs incurred. 


The first three are reported on the Statement of Financial Position while the remaining two
are reported on the Statement of Financial Performance. Sales and profit budgeting applies
this account group principle in order to communicate the necessary budgetary information
to stakeholders.
Time period
The primary purpose of accounting is to provide the necessary information for sound
economic decision-making to take place. In the fast-changing world of business, decision-
makers need this information to be provided in a timely manner.
A timely manner might include:

 a daily sales report for a sales person 


 a weekly gross profit report for a business unit manager 


 a monthly Statement of Financial Performance report for the CEO of company 


 quarterly and half-yearly Statement of Financial Performance, Statement of Financial

Position and cash flow reports for shareholders in public companies
 yearly tax and annual company reports for government agencies and statutory

authorities. 

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So, while a business may be in existence for a long period of time, stakeholders in the
business need the reports on business activities and financial performance to be provided
in shorter time periods. Stakeholders also require that these shorter time period reports be
regular and sequential so that comparisons can be made in performance with prior like-for-
like periods and business strategies can be changed in regard to any identified trends.


 These time periods are known as accounting periods. The ‘accounting period’ is the

period of time over which net income/profits are calculated and reported. The common
accounting periods are months and quarters for internal stakeholders and years for
external stakeholders, either fiscal (Jul–Jun) or calendar (Jan–Dec). The accounting period
covered by the statements will be shown in the header area of each of the income
statement, statement of cash flows, and the statement of stockholders’ equity. (i.e. Income
Statement for the month ended 31 March 20xx or Statement of Stockholders Equity for the
year ended 31 December 20xx). As you progress through this workbook, the key principles
of accounting and how they relate to the management of finances will become more

apparent. 


5. Explain and discuss the implications of probity when preparing and

revising budgets.

 Financial probity refers to the accountability and transparency of funds to an

organisation’s stakeholders no matter it is just a case of giving advice or transaction
related. It protects the interest of their customers, employees, shareholders etc. from
illegal behaviour that could damage both the clients and company’s reputation.
 The financial records must be retained for a period of seven years, which means any
legal documents are not destroyed during this period. Doing so, or changing the
information would not only lead to legal action but also breach the Corporations Act.
 An organisation has codes of conduct which refers to the employees working in an
ethical manner and maintaining the standards for the organisation which must be met.
Breach of this can lead to dismissal depending on the nature of breach.
 It also helps to avoid conflict of interest or clash of thoughts/ideas.

6. List the critical dates and initiatives that will require or generate
resources for Houzit Pty Ltd in the next financial cycle.
 Purchasing new car that would replace 5 years old car
 Reduction on loan on 31Dec 2011, will reduce interest payments
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 Manage the debtors, so as to encourage them to pay on time
 Reduce expected profit which profit? By how much? What percentage?
 Increase budget by 70,000 for advertising purpose
 Increase sales and wages by 1725000. Not sales

7. List the items you would recommend for inclusion in the budgets for
Houzit Pty Ltd. 

Once the budgets have been prepared and approved the finance manager will need to
ensure the information is circulated to senior management, peer leaders, consultants and
at times, employees. Effective circulation is quite often not an ‘either or’ decision but may
be a matter of utilising a combination of two or more methods such as:
● conference presentation
● phone/video conferencing
● staff meeting
● email
● a series of face-to-face meetings
Having completed the budgets in accordance with organisational requirements, the format,
structure and content will already have been predetermined and is likely to provide a level
of familiarity and understanding to the target audience.
However, there are likely to be items that cannot afford to be miscommunicated or
misunderstood and so it is important to effectively communicate to ensure the receivers of
the budget understand the:
Purpose of the budget – whether it is to increase production or sales or reduce costs, the
budget will communicate the goals of the business and provide benchmarks for which the
performance of the business can be evaluated.
Areas of responsibility – some managers or supervisor responsible for a department within
an organisation may have a departmental budget allocated to them and be accountable to
ensure financial targets are met. One of these areas of responsibilities can involve financial
delegation.
Financial delegation is the authority to approve expenditures or enter financial
arrangements that commit the organisation contractually. Delegation is a necessary part of
an efficient organisation where centralised control may make time delays unworkable and
lack of intimate knowledge of the day-to-day may make it prone to poor decisions.
Where possible, those individuals that have the responsibility to deliver results for an
organisation should have in equal measure the financial delegation to carry it out.
Typical financial delegations include the following:
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● expenditure and investment approvals to a prescribed level
● sign off authorities relating to those with authority to sign documents (e.g. cheques)
● employment delegations relating to hiring, firing and remuneration negotiations
● corporate governance requirements relating to who is authorised to communicate with
regulatory authorities.
Tied closely with financial delegation comes accountability. In other words, those that are
entrusted with the rights to a financial delegation must also be made accountable for
actions and decision-making.
The items that are recommended for inclusion in budget sheets are listed below
 Water bill
 Transportation
 Staff amenities
 Office expenses

8. List the new or modified internal controls that could improve risk
management for Houzit Pty Ltd including the maintenance of audit trails

The modified internal controls that could improve risk management for the company are:
 We need to follow rules and regulations
 Also we have to apply and implement all the procedures
 The time sheets and operating hours should be noted too