Assessment Task 1 BSBFIM601 Manage finances Prepare budgets BSBFIM601 Manage finances
© 2015 Innovation and Business Industry Skills Council Ltd 1st edition version: 1
Page 1 of 28 Assessment Task 1 BSBFIM601 Manage finances Submission details
Candidate’s name Phone no. Assessor’s name Phone no. Assessment site
Assessment
date/s Time/s The assessment task is due on the date specified by your assessor. Any
variations to this arrangement must be approved in writing by your
assessor.
Submit this document with any required evidence attached. See
specifications below for details. BSBFIM601 Manage finances
© 2015 Innovation and Business Industry Skills Council Ltd 1st edition version: 1
Page 2 of 28 Assessment Task 1 BSBFIM601 Manage finances Performance objective
For this task you are required to respond to a range of questions that
examine your understanding of key legislative and financial management
requirements for a case study organisation. This assessment also requires
you to review available financial information and establish a budget for the
organisation. BSBFIM601 Manage finances
© 2015 Innovation and Business Industry Skills Council Ltd 1st edition version: 1
Page 3 of 28 Assessment Task 1 BSBFIM601 Manage finances 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. BSBFIM601 Manage finances
© 2015 Innovation and Business Industry Skills Council Ltd 1st edition version: 1
Page 4 of 28 Assessment Task 1 BSBFIM601 Manage finances Procedure
Part 1
1. Read and analyse the case study information (including business
plan summary and previous financial data) and complete the
following.
a. Develop a sales budget, profit budget, cash flow budget and
debtor ageing summary using electronic spreadsheets (as separate
worksheets) making sure each budget is divided into quarterly
periods and that you use previous financial data to determine
allocations for resources.
i. Ensure each budget you prepare complies with the
organisational and policies and procedures as provided.
b. Develop budget notes that 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 bases that have been made or used to
form budgets
iv. any relevant notes regarding implementation and
monitoring of budget expenditure. Part 2
1. Communicate information regarding the budget and answer a series
of eight questions (see end of this task) in written or oral form as
agreed with your assessor. BSBFIM601 Manage finances
© 2015 Innovation and Business Industry Skills Council Ltd 1st edition version: 1
Page 5 of 28 Assessment Task 1 BSBFIM601 Manage finances Specifications
You must submit:
● 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 you have reviewed the case study information provided by submitting an appropriate budget with budget notes
● evidence that you understand, and can explain, the required legislative requirements of financial management (and outline
statutory requirements of ATO, GST, company tax, PAYG)
● evidence that you can outline compliance requirements for the Corporations Act 2001
● evidence that you can identify and recommend use of suitable software for financial management
● evidence that you have clearly communicated information regarding the budget and correctly responded to a series of questions (e.g.
describe the principles of accounting and financial systems)
● evidence that you can describe implications of financial probity
● evidence that you can outline the critical dates/initiatives that will require or generate resources
● evidence that you have provided for additional items (as necessary and appropriate) in the budget
● evidence that you have recommended new or modified internal controls that could improve risk management and maintenance of
audit trails
● evidence that you have developed an annual budget, as appropriate
● evidence that you have developed appropriate budget notes
● evidence that you have responded appropriately to the questions presented by ‘Jim Schnieder’, the CEO in the case study in this
assessment task. Adjustment for distance-based learners
This test can be adjusted for distance learners. Options include: BSBFIM601 Manage finances
© 2015 Innovation and Business Industry Skills Council Ltd 1st edition version: 1
Page 6 of 28 Assessment Task 1 BSBFIM601 Manage finances Option 1: Submit test as a report
Procedure:
● no variation of the task is required
● follow-up interview may be required (at the discretion of the assessor)
● documentation can be submitted electronically or paper-based. Option 2: Conduct test as an interview
This option involves holding an interview with the candidate on Skype or
by telephone.
Procedure:
● the assessor will schedule a date for the interview
● the assessor will make contact with the learner and commence the interview
● supplementary information or a follow-up interview may be required (at the discretion of the assessor). BSBFIM601 Manage finances
© 2015 Innovation and Business Industry Skills Council Ltd 1st edition version: 1
Page 7 of 28 Assessment Task 1 BSBFIM601 Manage finances Case study: Houzit Pty Ltd
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. 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.
Houzit 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 Houzit’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 if for the next 3–5
years, while the organisation continues to grow. They are anticipating that BSBFIM601 Manage finances
© 2015 Innovation and Business Industry Skills Council Ltd 1st edition version: 1
Page 8 of 28 Assessment Task 1 BSBFIM601 Manage finances 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 Houzit’s principle place of business.
Houzit have just upgraded their computers and have 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
Board
members
CEO
Accounta
nt Stores
manager Business
manager Accounts
receivable
Accounts
payable
Jim Schneider, 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. BSBFIM601 Manage finances
© 2015 Innovation and Business Industry Skills Council Ltd 1st edition version: 1
Page 9 of 28 Assessment Task 1 BSBFIM601 Manage finances 4. The anticipated aged debtors 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. BSBFIM601 Manage finances
© 2015 Innovation and Business Industry Skills Council Ltd 1st edition version: 1
Page 10 of 28 Assessment Task 1 BSBFIM601 Manage finances 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 and become the refer other
customers to the organisation. 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:
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.
b. To increase the advertising budget by $70,000 over the
2010/11 results in the hope that Houzit 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.
c. To increase wages and salaries by $172,500 over the
After going through the business plan summary, the CEO gave you the
previous year’s financial reports and asked you to speak with the BSBFIM601 Manage finances
© 2015 Innovation and Business Industry Skills Council Ltd 1st edition version: 1
Page 11 of 28 Assessment Task 1 BSBFIM601 Manage finances accountant Celina Patel to get some of the figures and detailed
expectations for the coming year.
You arrange a meeting with Celina Patel, Houzit’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
Celina 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:
Qtr 1 Qtr 2 Qtr 3 Qtr 4 2010/11 3,142,82
2 3,771,38
6 4,085,668 4,714,23
2 15,714,10
8 ● 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.
● Celina 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: BSBFIM601 Manage finances
© 2015 Innovation and Business Industry Skills Council Ltd 1st edition version: 1
Page 12 of 28 Assessment Task 1
○ BSBFIM601 Manage finances 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 2011 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. BSBFIM601 Manage finances
© 2015 Innovation and Business Industry Skills Council Ltd 1st edition version: 1
Page 13 of 28 Assessment Task 1 BSBFIM601 Manage finances Houzit Pty Ltd
For 12 months ended
Profit & Loss Actuals 2007/08 2008/09 2009/10 2010/11 12,474,336 13,472,315 14,550,100 15,714,108 – Cost Of Goods Sold 6,860,901 7,409,773 8,002,555 8,799,900 Gross Profit 5,613,465 6,062,542 6,547,545 6,914,208 – Accounting Fees 5,500 6,500 8,500 9,000 – Interest Expense 45,000 65,000 96,508 90,508 1,200 1,300 1,580 1,600 170,000 170,000 170,000 170,000 12,500 12,500 12,500 12,875 – – – – – Advertising 50,000 100,000 280,000 280,000 – Cleaning 12,560 15,652 18,700 19,261 – Repairs & Maintenance 40,250 52,600 60,000 61,800 2,465,000 2,465,000 2,465,000 2,538,950 9,862 12,523 14,000 14,420 22,500 23,658 25,000 25,750 – – 12,400 – 26,000 26,000 26,000 28,000 148,500 160,737 166,500 171,495 1,649,998 1,785,965 1,850,000 1,905,500 – Payroll Tax 78,375 84,833 87,875 90,511 – Workers’ Compensation 33,000 35,719 37,000 38,110 4,770,245 5,017,987 5,331,563 5,457,780 Net Profit (Before Tax) 843,220 1,044,554 1,215,982 1,456,428 Income Tax 252,966 313,366 364,795 436,928 Net Profit 590,254 731,188 851,188 1,019,499 Revenue
Sales Expenses – Bank Charges
– Depreciation
– Insurance
– Store Supplies – Rent
– Telephone
– Electricity Expense
– Luxury Car Tax
– Fringe Benefits Tax
– Superannuation
– Wages & Salaries Total Expenses BSBFIM601 Manage finances
© 2015 Innovation and Business Industry Skills Council Ltd 1st edition version: 1
Page 14 of 28 Assessment Task 1 BSBFIM601 Manage finances
Houzit Pty Ltd
Statement of Financial Position
As at 30 June 2009/10 2010/11 50,000 55,000 – Cheque Account 144,842 160,314 – Deposits Paid 950,000 950,000 – Trade Debtors 850,000 975,000 1,530,000 1,430,000 500,000 500,000 – Motor Vehicles Accum Dep ( 100,000 ) ( 125,000 ) – Furniture & Fixtures At Cost 1,950,000 2,250,000 ( 650,000 ) ( 770,000 ) 400,000 400,000 – Office Equip Accum Dep ( 90,000 ) ( 115,000 ) Total Fixed Assets 2,010,000 2,140,000 Total Assets 5,534,842 5,710,314 17,800 14,860 780,000 679,000 1,455,010 1,571,411 ( 943,125 ) ( 987,626 ) 100,000 120,000 20,920 – 364,795 436,928 65,000 44,872 1,860,400 1,879,445 – – – Bank Loans 1,608,459 1,508,459 Total Liabilities 3,468,859 3,387,904 – Owner/Shareholder’s Equity 500,000 500,000 – Retained Earnings 850,000 1,565,982 ( 500,000 ) ( 1,200,000 ) 1,215,982 1,456,428 Assets
Current Assets
– Cash On Hand – Merchandise Inventory
Total Current Assets
Fixed Assets
– Motor Vehicles At Cost – Furniture & Fixtures Accum Dep
– Office Equip At Cost Liabilities
Current Liabilities
– MasterCard
– Trade Creditors
– GST Collected
– GST Paid
– Superannuation Payable
– Luxury Car Tax Payable
– income Tax Payable
– PAYG Withholding Payable
Total Current Liabilities
Long-Term Liabilities Equity – Dividends Paid
– Current Year Earnings BSBFIM601 Manage finances
© 2015 Innovation and Business Industry Skills Council Ltd 1st edition version: 1
Page 15 of 28 Assessment Task 1
Total Equity BSBFIM601 Manage finances
2,065,982 2,322,410 Internal auditor
Carl Kerns is one of the directors of the board. Carl 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 a purchase 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 was 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 Carl 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.
BSBFIM601 Manage finances
© 2015 Innovation and Business Industry Skills Council Ltd 1st edition version: 1
Page 16 of 28 Assessment Task 1 BSBFIM601 Manage finances ● 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.
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:
● Cost of goods sold: ○ 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.
CASH FLOW
ANALYSIS – GST 2011/12 Qtr 1 Qtr 2 Qtr 3 Qtr 4 GST Collected x,xxx x,xxx x,xxx x,xxx x,xxx Less GST Paid x,xxx x,xxx x,xxx x,xxx x,xxx Calculati
on Calculati
on Calculati
on Calculati
on Calculati
on GST Payable 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
debtors 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. BSBFIM601 Manage finances
© 2015 Innovation and Business Industry Skills Council Ltd 1st edition version: 1
Page 17 of 28 Assessment Task 1 BSBFIM601 Manage finances 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 BSBFIM601 Manage finances
© 2015 Innovation and Business Industry Skills Council Ltd…