Appendix 4: questions

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

The Houzit Pty. Ltd. needs to comply all the regulatory requirements of the government in order to avoid
the intervention of government in company matters. The tax liability of the company will be calculated
on the basis of tax law applicable to the company. The various financial statement of the company has to
be prepared in accordance with the AASB accounting standards and the tax shall be calculated on the
net income obtained after deducting all the expenses. The company is not applying the industrial wage
rate in the calculation of payroll and therefore there is a need to revise the same.

Company Tax:
The company tax payable by the company for the year 2011-12 is $ 466867. 
Capital Gain Tax:
The capital gain tax has been determined in accordance with the long-term gains obtained by the
company.
Goods and Service Tax:
The GST payable by the company has been ($147661)
Payroll Tax:
The payroll tax as payable by the company has been $ 98705.

2.Identify the current compliance requirements and liabilities for this organisation under the
Corporations Act 2001
Proprietary limited:The proprietary has to comply with various compliance tools in order to avoid the
legal issues to be faced due to compliance with Corporation Act 2001 and they are recognized as follows:
ASIC:
The proprietary has to comply with various compliance tools in order to avoid the legal issues to be faced
due to compliance with Corporation Act 2001 and they are recognized as follows
Compliance tools:Auditing standards – The Corporation Act requires the proprietary to regular appoint
an auditor for auditing the accounting work of the company along with its financial statement so that
any deficiencies and discrepancies can be identified and corrected accordingly.
3.Review commercially available financial management software to select the most suitable software
for Houzit Pty Ltd.
The financial management software will enable the management of the company Houzit Party. to record
the transactions of the company accurately and timely. The various financial management software’s are
discussed and the recommendation has been made accordingly.
MYOB:
The MYOB accounting system is a single user entry-level bookkeeping system which is most suitable for
the micro level businesses. There are integrated modules available in this type of software. The
accounting software remains up to date with ATO and provides easy and fast tax updates
XERO:
XERO can be represented as the online accounting software for the business concerns. The software
helps in identifying the real-time cash flows of the company and provides various additional features like
invoicing & quotes, bank reconciliation and maintaining records of the inventory.
Excel:
The excel is a complete accounting solution for the small business concerns which provides benefits such
as no complex accounting terms, maintenance of the accounting book with the aid of ease and no
required set of accounting or bookkeeping knowledge or skill is required.
Recommendation for Houzit:
The Houzit Pty Ltd should adopt and purchase XERO software as the software will enable the company to
have a real-time access to the cash flows of the company and the online accounting software will enable
the company to remain updated all the time. The current accounting software needs to be replaced and
the add-on must be made to the accounting system of the company
4.Explain how you can apply the following principles of accounting in developing the budgets required
for this task:
Matching principle:
The matching principle of the accounting refers to the principle that the expenses should be recognized
in the same period when the revenues related to those expenses are recognized in the financial
statements. The company has used this principle in order to maintain the transparency in accounts.
Account groups:
It refers to the summary of the account based on the criteria how master records are created and
determine the number of intervals from which account is created from the GL. In the preparation of
financial records, the company has utilized the past information related to various accounts
Time periods:
The time period of the accounting groups will help the company in differentiating and obtaining the
results obtained in various time frames of the company. The results obtained will then be utilized for
further evaluation and decision making purposes.
5.Explain and discuss the implications of probity when preparing and revising budgets
Ethics:
Probity has been referred as the evidence of ethical behavior and can be determined as confirmed and
complete integrity, honesty and uprightness in the particular process of budgeting
Responsibility:
The responsibilities are concerned with the adoption of innovative approaches and require internal
expertise in the process of preparing and revising the budgets for estimation and forecasting purposes of
management
Decency:
The mechanism for applying probity in budgeting process shall be applied decently and sensible while it
should not be utilized for avoiding reasonable discussions
Conflict of Interest:
For avoiding the conflict of interest officials must not use their position and their potential for various
claims should not be biased. The conflicts of interest must be managed appropriately by the
management. The official must not accept any personal benefits
6.List the critical dates and initiatives that will require or generate resources for Houzit Pty Ltd in the
next financial cycle
Planning your financial year in detail will allow you to make the most of busy and slow periods and
manage your finances accordingly.

The dates mentioned in the budgets and the time periods selected are crucial for the next accounting
cycle of the business and there is the need for the management of the company to recognize
appropriate time periods for preparation of accurate and adequate accounting records. This will enable
the management in analyzing the current position of the company and allocating the resources
accordingly to various processes and departments of the company
7.List the items you would recommend for inclusion in the budgets for Houzit Pty Ltd and explain for
each item what information or research informed your estimates.
Pensions – The pension provided by the company to its employees will be recognized as a major
expenditure for employee benefits in the company
1. Healthcare – The healthcare facilities provided to the employees and staff of the company needs to be
included in the expense item of the company.
2. Travel – The travel expenses which are related to professional's engagements and trails of the
management and employees have to be included in the budgets and should be recognized properly.
3. Training fees – The training fees should be recognized as an administrative expense for the company
for making its employees efficient and suitable for the job.

8.List the new or modified internal controls that could improve risk management for Houzit Pty Ltd
including the maintenance of audit trails.
The internal controls that could improve risk management for Houzit:
Petty Cast,Refund,Cash Control,Resource Ordering,Recording Transaction,Audit trails.

Task 1: Prepare budgets

Sales and profit budgets

PROFIT BUDGET 2011/12 Qtr 1 Qtr 2 Qtr 3 Qtr 4

Revenue - % % % %

Sales 16,971,236. 3,394,247.33 4,073,096.7 4,412,521. 5,091,370.9

64 9 53 9

– Cost of Goods Sold 10,126,170. 2,025,234.14 2,430,280.9 2,632,804. 3,037,851.2

72 7 39 2

Gross Profit 6,845,065.9 1,369,013.18 1,642,815.8 1,779,717. 2,053,519.7

2 2 14 8

Gross Profit % 40 40 40 40

Expenses

– Accounting Fees 10,000 2,500 2,500 2,500 2,500

– Interest Expense 84,508 21,127 21,127 21,127 21,127

– Bank Charges 1,600 400 400 400 400

– Depreciation 170,000 42,500 42,500 42,500 42,500

– Insurance 13,390 3,347.50 3,3347.50 3,347.50 3,347.50

– Store Supplies 3,749.20 749.84 899.81 974.79 1,124.76

– Advertising 350,000 200,000 50,000 50,000 50,000

– Cleaning 16,282 32,56.45 3,907.74 4,233 4,884.67

– Repairs & 64,272 16,068 16,068 16,068 16,068

Maintenance

– Rent 2,640,508 660,127 660,127 660,127 660,127

– Telephone 14,996 2,999 3,599.23 3,899.17 4,499.04

– Electricity Expense 26,780 5,356 6,427.20 6,962.80 8,034

– Luxury Car Tax 12,000 3,000 3,000 3,000 3,000

– Fringe Benefits Tax 28,000 7,000 7,000 7,000 7,000

– Superannuation 187,020 37,404 44,484.80 48,625.20 56,106

 – Wages & Salaries 2,078,000 415,600 498,720 540,280 623,400

– Payroll Tax 98,705 19,741 23,689 25,663.30 29,611.50

– Workers’ 41,560 8,312 9,974.40 10,805.60 12,468

Compensation

Total Expenses 5,841,371.2 1,449,488.15 1,398,171.8 1,447513.7 1,546,197.4

4 8 4 7

Net Profit (Before Tax) 1,003,694.6 -80,474.96 244,643.94 332,203.40 507,322.30

8

Income Tax 301,108.40 -24,142.49 73,393.18 99,661.02 152,196.69

Net Profit 702,586.28 -56,332.47 171,250.76 232,542.38 355,125.61

GST Cash flow budget

CASH FLOW
ANALYSIS – GST 2011/12 Qtr 1 Qtr 2 Qtr 3 Qtr 4

GST Collected 1,697,123.66 339,424.7 407,309.68 441,252.1 509,137.1

3 5 0

Less GST Paid 323,744.42 91,877.07 77,124.30 77,247.91 77,495.15

GST Payable 1,373,379.24 247,547.6 330,185,.38 364,004.2 431,641.9

6 4 5

Aged debtors

AGED DEBTORS TOTAL Qtr 1 Qtr 2 Qtr 3 Qtr 4

BUDGET

Sales 16,971,236.6 3,394,247.33 4,073,096.7 4,412,521.5 5,091,370.99

4 9 3

% Debtors Sales 3,394,247.33 678,849.47 814,619.36 882,504.31 1,018,274.20

Total Debtors 13,576,989.3 2,715,397.86 3,258,477.4 3,530,017.2 4,073,096.79

1 3 2

Current 11,404,671.0 2,280,934.20 2,737,121.0 2,965,214.4 3,421,401.31

2 5 7

30 Days 1,357,698.93 271,539.79 325,847.74 353,001.72 407,309.68

60 Days 678,849.47 135,769.89 162,923.87 176,500.86 203,654.84

 90 Days 135,769.89 27,153.98 32,584.77 35,300.17 40,730.97

Identify of reasons for previous profits and loss;

The profit budget shows that profit and loss earned by the company Houzit Pty. and the changes which
have incurred in the figures of incomes and expenditures form the last year. There has been an increase
in the inflation rate and therefore an assumption has been made that the expenditure has increased by
4%. The other assumption has been made that the gross profit of the company has decreased by 1%.
The fixed expenses incurred during the year have been allocated equally to each quarter .There are
various changes identified in the profit budget which includes the increase in the advertisement
expenditure of the company by $70000 and the introduction of royalty tax due to the purchase of the
royal car. Also, there has been a payment of $100000 due to which expenses of the company has
decreased.
Reasons for existing financial management approaches not effective
The reason behind the non-effectiveness of financial management approaches includes unavailability of
adequate information, unnecessary expenditure, lack of market research and others.
Assumptions and based used to form this budgets
An assumption has been made during the year that the debtors of the company represent 20% of the
sales made during each of the quarter. The debtors have been recognized on a similar basis for each of
the quarter and the way of the collection has also been represented for the same (Tappura, et. al., 2015).
It can be observed that with the increase in the sales the debtors of the company has also increased with
the proportionate amount and therefore there is a need to modify the current credit policy of the
company.
Key points that must be followed during the Implementation and Monitoring the budget expenditure
The GST expenditure has been estimated on the basis of expenses incurred during the year. The GST
credit has been deducted from the current tax liability of the company which represents the tax credit of
the last year. The GST calculated for the whole year has been segregated on the basis of sales made
during each quarter and the tax liability has been calculated accordingly

Task 2
Main Contents
At the start of every quarter there is a set goals of company for which management make their inputs
and perform different activities. At the end of the quarter they analyse their results by comparing the
actual results with their set standard results. The difference in the results after comparison termed as
variance and it can be favourable or unfavourable.
Variance analyse is made in order to evaluate the overall performance
whether they are going in the targeted direction or not. It helps in identifying the issues and help the
management to focus over key areas.
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 budgetsBudget variance report
template

Economy recession;Economy is under recession face and sales are not growing as per the
budget.reason:Slowdown in investment growth and increasing interest rates.priority:1

Interest :Due trate increaseo ression.Reason:It will impect the interest payout directly.Priority:6

Price discounts Required to attract customers.An attractive discount scheme will attract customer and
increase sales volumes
According to the organisational policy and procedures variance report.

Houzit Pty Ltd

Variance to Budget
xxx Quarter ended mmm-yyyy
$
Actual Results Budget-Qx Actual-Qx Variance % Variance F or U
Sales 3,394,247 3,371,200 -23,047 -1 U
– Cost Of Goods Sold 2,025,234 1,955,296 -69,938 -3 U
Gross Profit 1,369,013 1,415,904 -46,891 3 F
Gross Profit % 40% 42% % 2% F
Expenses F
– Accounting Fees 2500 2,500 0 0 F
– Interest Expense 21,127 28,150 7,023 33 F
– Bank Charges 400 380 -20 -5 U
– Depreciation 42,500 42,500 0 0 F
– Insurance 3,348 3,348 1 0 F
– Store Supplies 750 790 40 5 F
– Advertising 200,000 150,000 -50,000 -25 U
– Cleaning 3,256 3,325 69 2 F
– Repairs & Maintenance 16,068 16,150 82 1 F
– Rent 660,127 660,127 0 0 F
– Telephone 2,999 3,100 101 3 F
– Electricity Expense 5,356 5,245 -111 -2 U
– Luxury Car Tax 3,000 12,000 9,000 300 F
– Fringe Benefits Tax 7,000 7,000 0 0 F
 – Superannuation 37,404 37,404 0 0 F
– Wages & Salaries 415,600 410,500 -51,00 -1 U
– Payroll Tax 19,741 19,741 0 0 F
– Workers’ Compensation 8,312 8,312 0 0 F
Total Expenses 1,449,488 1,410,572 -38,916 -3 U
Net Profit (Before Tax) -80,475 5,333 85,808 -107 U
Income Tax -24,142 1,600 25,742 -107 U
Net Profit -56,332 3,733 60,065 -107 U

Note: F = Favourable, U = Unfavourable

Debtor ageing ratio template

2009/10 2010/11 2011/12

Trade Debtors 850,000 975,000 1,100,000

Sales 14,550,100 15,714,108 16,971,236

Debtor Days 21 23 24

Performance
The overall performance of the business is not satisfactory as they are not able to get the set profits The
results are unfavourable and instead of getting huge profits they are getting minimum share of profits.
Recommendation
It should be recommended that the management of the company should consider the economic impact
on the business activities of the company. The advertisement expenditure of the company should be
controlled in the way that it meets out the benefits accruing from it and the sales targets are achieved
accordingly. The SGHT liability of the company was wrongly estimated and the same should be carefully
estimated in the next quarter so that accurate cash flows can be identified. The problem can be carved
out with the implementation of new accounting software which will enable the correct recording and
estimation of transactions
Conclusion
The management of the company should adopt the appropriate strategies in order to achieve the
required sales targets and appropriate pricing policies should be implemented in order to avail the
accurate price discounts to the various customers of companies. The advertisement expenditure needs
to be controlled in a way that the benefit accruing exceeds the cost associated with it.

Role Play:

Jim Schnieder: Good Morning all.

Finance Manager: Good Morning, Sir.

Jim Schnieder: How the company is performing as per your financial report?
Finance Manager: Sir, There are mixed results some of them are unfavourable and favourable.

Jim Schnieder: What are areas of improvements in relation to cost?

Finance Manager: Sir, Due to increase in the cost of goods sold, our revenue goes down and turned into
the loss. We have to control the overall cost of production and have to increase profit margin.

Jim Schnieder: Any other Suggestion?

Finance Manager: It can be observed from the above budget that despite expending huge expenditure
on the sales promotion and advertisement activities the company has not been able to achieve the
desired sales which have been a result of the economic slowdown recognized in the market. The same
requires the efforts to be made in the advertisement sector for efficient operations to be conducted.
Also, the cost of goods sold needs to be controlled by the company which has been $54517 in this
quarter.

The decrease in the rates also had a significant impact on the results of the company. The accounting
fees of the company noticed 75% decrease and the bank charges which increased in the quarter were
not significant for the company. The other administrative expenses of the company including rent,
electricity and other charges have been in control and there is no need to control these expenditures.

The cash flow analysis of the company shows that the cash profits obtained by the company which is
$6416 has been low in comparison to the standard profits determined and this has been the result of the
increase in the cost of goods sold and increased expenditure of advertisement. The price discounts
availed by the company to its customers should be based on the appropriate pricing policy and the
objective of maximizing profits to be achieved should be fulfilled.