Management finance

Assessment Task 1: Case Study

Assessment Objectives

For this task, you are required to respond to a range of prompt questions that examine your understanding of key legislative and financial management requirements for a case study organization. This assessment also requires you to review available financial information and establish a budget for the organization


Assessment Requirement

  1. Read the case study.
  2. Analyze the case study information and respond to the questions in the space provided.
  3. Analyze the case study information (including business plan summary and previous financial data) and complete the following.
    1. Develop a sales budget, profit budget, cash flow budget and debtor ageing summary using electronic spreadsheets (as separate worksheets – you can use the templates provided) making sure each budget is divided into quarterly periods and that you use previous financial data to determine allocations for resources. Ensure each budget you prepare complies with the organizational policies and procedures as provided.
    2. Develop budget notes which include:
    3. identification of reasons for previous profits and losses
    4. Your comment on the effectiveness of existing financial management approaches

iii. All assumptions and basis that have been made or used to form budgets

  1. Any relevant notes regarding implementation and monitoring of budget expenditure.
  2. Communicate information regarding the budget and answer a series of prompt questions in written or oral form as agreed with your assessor.


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.


Case study

You have recently been appointed as the business manager of A2Z Solutions Pty. Ltd having been a store manager for the past three yearsA2Z Solutions Pty. Ltdis a 15 store retail chain located in Melbourne.A2Z Solutions Pty. Ltd is the leading home wares retailer, catering to the growing need for furnishing new and renovated dwellings in the greater Melbourne area.

The assortment on offer of bathroom fittings, bedroom fittings, mirrors and decorative items together with the recently added lighting fixtures has positioned A2Z Solutions Pty. Ltd as a leader in homewares retailing in Australia. A2Z Solutions Pty. Ltd has grown over the past five years from a single store to the current chain. A2Z Solutions Pty. Ltd prides itself on superior after sales service which has been a key reason for the continued growth in sales and corresponding profit increases. Today A2Z Solutions Pty. Ltd employs over 150 staff.

A2Z Solutions 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 A2Z Solutions Pty. Ltd.’s solicitors (Mars Lawyers, 537 Queen Street, Melbourne, VIC 3000) and the principle place of business is 506Collins Street, Melbourne, VIC 3000.


Computer software requirement

The current accounting information system has not adequately provided sufficient analysis of revenue and expenditure and has made it difficult to make informed estimates of future profits. Estimates have relied on the ‘gut feel’ of the experienced traders on the board and of the senior managers. The board sees the need to apply more analysis to past results that they believe could be done with the introduction of state-of-the-art computer software.

A2Z Solutions Pty. Ltd. wants to upgrade their existing accounting system which will manage the company accounts more efficiently in the long run. They request that the new system you recommend to them to be compliant with all legislative and statutory requirements for small to medium businesses.

None of A2Z Solutions Pty. Ltd.’s products are GST free, however the accounting information system records the GST collected as well as the input tax credits earned on the purchases of stock and assets. These amounts are reported and paid in accordance with the business activity statement (BAS) schedule determined by the Australian Tax Office.

They have 100 fulltime and 50 part-time staff, but only 10 of the staff will have or need access to the financial system. Some staff are paid on a salary sacrifice arrangement that attracts fringe benefits tax. The staff with access to the financial system want software that is a single purchase with no ongoing license fees, and a plan to keep using it for the next 3–5 years, while the organisation continues to grow. They are anticipating that within five years they will have over 250 full-time staff, and at least 20 staff will require access to the financial system by then.

The payroll system deducts withholding tax from the employees and remits this along with the firm’s pay as you go (PAYG) instalment each quarter as reported on the firm’s business activity statement. Income tax return for the company and its annual statement is completed by the firm’s accountant. Taxes and fees due are paid by the due dates. Financial records are kept at A2Z Solutions Pty. Ltd.’s principle place of business.

A2Z Solutions Pty. Ltd has just upgraded their computers and has five new desktop PCs which will be used by the finance staff. They are current (for 2011) specification machines with i5 CPUs and 4Gb RAM each, and all have Windows 7 Professional and Norton’s 360 installed with the professional version of Microsoft Office Small Business as well. Other staff will use their machines at various times, so it is important that the software requires a login to access data and that data stored by the software cannot be accessed in any other way.


Corporate details

Jimmy Retro, the CEO, has asked you to prepare some financial budgets for the 2011/12 financial year as a preliminary overview of the financial year ahead.He asked you to first prepare a 12 months budget and then break it up over the four quarters. The areas he is particularly interested in seeing is:

  1. Sales budget for 2011/12 by department by quarter.
  2. Profit budget (including detailed expenses) for 2011/12 by quarter.
  3. The cash flow result per quarter of the GST after adjusting the GST collected by the allowable GST tax credits.
  4. The anticipated aged debtor’s summary at the end of each quarter.

The CEO wants to be given all the budgets except for the aged debtors’ budget which the accountant and accounts receivable clerk can monitor. The CEO produced a summary of the current business plan that covered the budget year to highlight some of the key goals, objectives and strategies he would like incorporated into the budget.


Business plan summary

  1. The anticipation that the coming financial year would maintain the same sales growth as the growth that took place between 2007/08 to 2010/11.
  2. To budget for an increase in inflation to 4% per annum and that all costs subject to inflation should incorporate this particular increase.
  3. A new car costing $97,466 including GST has been planned for in the coming period to replace the five year old vehicle currently used by the chairman. This fuel inefficient car will attract a luxury car tax.
  4. Sales breakup over the departments is anticipated to be bathroom fittings 30%, bedroom fittings 25%, mirrors 15% and decorative items 10% together with the recently added lighting fixtures 20%.
  5. Profits are to be built on securing a growing customer base which will generate loyalty sales. The superior after-sales service is the key strategy to achieve this.
  6. Reduction on the principle of the loan by a payment of $100,000 on the 31 December 2011 from the profits generated by the business.
  7. One objective in this plan is to manage the debtors more efficiently in the current period. This will involve an analysis of the debtors to identify ways to reduce the amount of cash tied up in outstanding debtors.
  8. The expectation that 2011/12 would be a difficult trading year but that the budget net profit should target the same result as achieved in the 2010/11. The strategy to achieve this in the business plan included three key elements:
  9. a) To reduce the expected gross profit rate by 1% on the 2010/11 result in the hope that lower prices on the products would help maintain the sales growth even in difficult trading conditions.
  10. b) To increase the advertising budget by $70,000 over the 2010/11 results in the hope that A2Z Solutions Pty. Ltd. can secure a greater market share in a constricting market. $200,000 is planned for the first quarter with the balance apportioned equally over the following three quarters.
  11. c) To increase wages and salaries by $172,500 over the 2010/11 amounts in the hope that allowing the existing high number of casual staff to earn commissions on sales that should help to maintain A2Z Solutions Pty. Ltd’s sales growth.


After going through the business plan summary, the CEO gave you the previous year’s financial reports and asked you to speak with the accountant Reema Mehta to get some of the figures and detailed expectations for the coming year.

You arrange a meeting with Reema Mehta, A2Z Solutions Pty. Ltd’s accountant, and she gives you the following insight into the historical expense relationships and the current statutory compliance liabilities.


Sales and profit budget information

Reema explained that the only budget she monitors on a day-to-day basis is the cash flow budget and the store manager is primarily responsible for the sales budget.

These are the notes you take at the meeting:

  • The overall sales for 2011/12 target set by the business plan should be apportioned across the quarters in the same % as was achieved in 2010/11. This was:
  • Cost of goods sold is the inverse of the gross profit rate determined by the business plan and is determined by the quarterly sales budget.
  • Accounting fees have been negotiated for the year at a fixed amount of $10,000 to be paid in equal amounts each quarter.
  • The interest charges on the bank loan are anticipated at a reduced amount of $84,508 due to an agreed repayment of some of the loan principal. This is to be paid in equal amounts each quarter.
  • Bank charges are expected to be the same as 2011 and paid in equal amounts each quarter.
  • Reema has requested that a new expense (store supplies) be recognised in the new budget that was previously included in with the cleaning expense amounts. Store supplies in the 2009/10 results was $3,500 of the cleaning expense and $3,605 of the 2010/11 result. Cleaning expense will then be lower but identify the real labour costs involved in the cleaning expense.
  • Depreciation is expected to be the same as 2011 and allocated in equal amounts each quarter.
  • Advertising is to be apportioned to each quarter based on the business plan.
  • The following expenses are expected to increase by the determined inflation rate in the business plan summary:

○ Insurance – apportioned in equal amounts each quarter.

○ Store supplies – is calculated for to each quarter using the same % as determined by the sales for each quarter.

○ Cleaning – is calculated for each quarter using the same % as determined by the sales for each quarter.

○ Repairs and maintenance – apportioned in equal amounts each quarter.

○ Rent – apportioned in equal amounts each quarter.

○ Telephone – is calculated for to each quarter using the same % as determined by the sales for each quarter.

○ Electricity – is calculated for to each quarter using the same % as determined by the sales for each quarter.

  • Fringe benefits tax is expected to be the same as 2014 and paid in equal amounts each quarter.
  • Wages and salaries are calculated for each quarter using the same % as determined by the sales for each quarter.
  • The statutory requirements are:

○ Superannuation is 9% of wages and salaries for each quarter

○ Payroll tax is 4.75% of wages and salaries for each quarter

○ Workers compensation is 2% of wages and salaries for each quarter

○ Company tax is 30% of net profit before tax for each quarter


Internal auditor

Lewis Cairns is one of the directors of the board. Lewis said that as a board member they are given the profit and cash flow budgets. He was appointed by the board to conduct an internal audit of operations to look for weaknesses in the internal control system. His report uncovered the following processes that he believed needed to be strengthened.

  • While the overall customer base is increasing from year to year, there may be internal control issues relating to how these new customers are secured.
  • Some discounts that were being given to customers were recorded as a net amount on the invoices and gave no indication of the discount from standard prices.
  • Some cash registers in the stores were not reconciling the cash in drawer with the register printout.
  • Not all timesheet overtime amounts were being authorised by the line manager.
  • Service invoices for some items of equipment were not signed or linked to apurchase order. There was no check that the work had actually been carried out.
  • Not all assets in the stores had unique codes fixed to the asset.
  • There were minimal feedback lines of communication from the shop floor to head office, particularly when an error in the budgeting report process was recognised.
  • Debtor reconciliations were not done monthly and sometimes not at all.
  • In busy times the cashiers that operated the registers were also asked to do their own reconciliations and banking. Sometimes the cash was held in the store for a day or two.
  • Job roles were not clearly defined so that responsibilities and liability can be identified.
  • There was little rostering of duties and cash receipts were not pre-numbered

Of particular concern to Lewis was the directive given by the board to ensure that audit trails were created and maintained. These included:

  • Signing the timesheets for employees under the authority of a department manager.
  • Maintenance of a numbered cash receipts book.
  • Using sequenced cheques as a systematic way of evidencing all monies paid out.
  • Ensuring proper coding of evidenced transactions against appropriate general ledger account and cost centre.
  • Ensuring reconciliations between company books and third-party bank statements are performed.


GST cash flow budget

Statutory requirements for GST is 10% of the recorded amounts in sales. GST paid must also include GST on cost of goods sold. The only capital purchase planned for the year is the luxury car for the chairman. Those expense payments on which 10% GST was paid include the following expenses:

○ accounting fees

○ Insurance

○ Store supplies

○ Advertising

○ cleaning

○ Repairs and maintenance

○ Rent

○ Telephone

○ Electricity expense.


The GST amount payable each quarter is the difference between the GST collected from sales and the GST paid – format as per policy and procedures.

Debtors ageing budget

The historical records show that the debtors balance at the end of each quarter is usually about 20% of the quarter’s sales. At any time in the debtor’s balances 1% of the total debtors is overdue 90 days and over, 5% is 60 days overdue, 10% is 30 days overdue and the balance of the total debtors is current. The aged debtors’ budgets are only distributed to the accountant and the accounts receivable clerk.


A2Z Solutions Pty Ltd 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

A2Z Solutions Pty. Ltd. prepares budgets to meet various company objectives. Budgets are prepared:

  • for a specific expansion of the business activities
  • to outline a specific debt reduction initiative
  • 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

○ 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

Budget variances and schedules

  • Key performance indicators that should be closely monitored and reported on include variances to:

○ total sales

○ gross profit (GP) %

○ wages and salaries 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.
  • An analysis of the variance between the actual and the budget must include $ and % variance.
  • 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.


Standard formats

The following formats will be used when preparing A2Z Solutions Pty. Ltd.budgets and variance reports.


Sales and profit budgets


GST Cash flow budget


Aged debtors


The CEO of A2Z Solutions Pty. Ltd., Jimmy Retro explained that he prefers to discuss the budgets with all senior managers prior to their distribution in order to ensure a corporate view of the strategic plans. He then meets with each group separately to answer questions and concerns about their particular area. Eventually the budgets will be printed in hard copy and bound as well distributed as an electronic spreadsheet.

Upon completion of the budgets you meet with Jimmy to provide an overview of the information contained within the budgets, the budget notes and recommendations regarding the internal controls to prepare him for the meetings with the senior managers. To clarify his understanding of the information, Jimmy asks you a series of questions (listed below, which you will complete written or orally as agreed with your assessor).


Prompt questions

Based on the information provided in the case study, answer the following questions:

  1. Identify the current statutory requirements for tax compliance and list and calculate the tax liabilities for A2Z Solutions Pty. Ltd. Under taxation legislation.
  2. Identify the current compliance requirements and liabilities for this organisation under the Corporations Act 2001.
  3. Review commercially available financial management software to select the most suitable software for A2Z Solutions Pty. Ltd. and outline the reasons that led you to this recommendation.
  4. Explain how you can apply the following principles of accounting in developing the budgets required for this task:
  5. matching principle
  6. account groups
  7. time periods
  8. Explain and discuss the implications of probity when preparing and revising budgets 6. List the items you would recommend for inclusion in the budgets for A2Z Solutions Pty. Ltd
  9. List the critical dates and initiatives that will require or generate resources for A2Z Solutions Pty. Ltd in the next financial cycle



Assessment Task 2: Project Work

Assessment Objectives:

For this assessment, students are to utilize the information given to complete the comparative balance sheet for A2Z Solutions Pty. Ltd given in Appendix 1.  The relevant information needed is also included.  Once completed, students are to analyse the performance of A2Z Solutions Pty. Ltd.


Assessment Requirement:

For this assessment, students are to utilise the information given to complete the comparative balance sheet for A2Z Solutions Pty. Ltd given in Appendix 1.  The relevant information needed is also included.  Once completed, students are to analyse the performance of A2Z Solutions Pty Ltdand provide notes of their observation with regards to the financial performance of the company.

Once the balance sheet is completed, students should further analyse the company’s performance by comparing the above data with company goals as stated in Appendix 2 and state how the company goals have varied from the actual data.



Additional Information:

  • Profit for year ended 31 June 2009 was $94,000
  • Cash received from customers totalled $330,000
  • Cash paid for inventory totalled $170,000
  • Cash paid for expenses totalled $20,000
  • Dividends paid during the year were: $67,000
  • During the year, accounts receivable decreased by $10,000
  • Cost of new buildings acquired during the year $125,000
  • No buildings were deposed of
  • Land account was not affected by any transactions, but the fair market value of the land as of 31 June 2008 was $178,000
  • Note that expenses included Entertainment Expense of 6,000


A2Z Solutions Pty Ltd. Management had the following aims for 2009:

  • To reduce liabilities by 5%
  • To increase profits by 8%
  • To increase sales by at least 5%


Study the variance between management goals and actual data. Were these goals met?  Were they exceeded?  Did they fall short?




Assessment Task 3: Written Questions and Answers

Assessment Requirement:

The student is required to provide written answers to the following questions. References must be provided in case any source of information is used in forming the the answers.



Q1: In your own words, describe responsibility accounting?

Q2: Which of the following statements relating to a budget is not true?

  1. a) It is a detailed plan
  2. b) It is a management tool
  3. c) It provides many of the performance targets used in responsibility accounting
  4. d) It is prepared on a historical basis
  5. e) It identifies certain financial and operating targets

Q3: Briefly explain the 4 different types of budgets and their purposes.

Q4: What information would you require, to plan and prepare a budget for a new business?  Also explain where isthis information sourced from?

Q5: List all the external factors that needs to be taken into consideration when planning and preparing a budget?

Q6: Describe the following terms in relation to an organization’s budgetary requirements.


Q7: What steps would you take to effectively implement the budget into a team environment?

Q8: What is the trades practice Act?

Q9: What records need to be kept for the ATO for a small business with an annual turnover of less than $2million (cash basis)


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