Houzit Pty Ltd is a trading firm that is leading in selling home stuff

Introduction

Houzit Pty Ltd is a trading firm that is leading in selling home stuff and serving the growing need to furnish renovated and new residences. The company offers a variety of products ranging from mirrors, lighting fixtures, decorative pieces, bedroom, and bathroom fittings and this has positioned the firm as the leading store in Australia. Houzit has majored on high-level after-sale service as its key to growth strategy. Houzit is a public firm that is listed in the ASIC and employs more than 150 employees.

In this study, budget preparation, review, and monitoring will be covered concerning Houzit Pty Ltd. Sales Budgets, Income Statement, Cash Flow Analysis, and debtors’ analysis will be prepared, reviewed, and monitored to provide more understanding of this important financial management practice.

Task One: Budgets

Part One, A

Sales Budget

Table 1. Sales Budget for Houzit Pty Ltd for the year 2011/2012

Income Statement Budget

Table 2. Income Statement Budget for Houzit Pty Ltd for year 2011 – 2012

Cash-flow Budget

Table 3. Cash-flow Budget for Houzit Pty. Ltd for the year 2011/2012

Debtors Aging Analysis

Table 4. Debtors Aging Analysis for Houzit Pty. Ltd for the year 2011/2012

Part B

Explanations for previous Losses and Profits

Houzit Pty Ltd has reported an increased profit for all the prior years running from 2007-2011. This has been occasioned by an increase in sales of 7.41 percent. Additionally could have been a result of lower inflation rate affecting various expense items like insurance, rent, and telephone among others. Also, advertisement expenses were lower as indicated in the business plan that the company intends to increase this expense by $70,000. This reflects why previously the company made a profit.

Effectiveness of Financial Management Approach

            Houzit Pty Ltd is experiencing non-effective financial management approaches due to a lack of adequate information, market research, and unnecessary expenditure among others.]

Assumptions made in Budget Preparation

            During Budget Preparation several assumptions were made; debtors were represented as 20 percent of sales for each quarter drawing an interesting conclusion that with an increase in sales there will be a direct proportion increase in debtors.

Implementation and Monitoring the Budget Expenditure

            GST expense was measured based on expense incurred during the period and was subtracted from tax liability reported by the firm which signifies tax credit of year 2010/11. GST computed for the entire year was separated based on sales attained every quarter and tax liability was computed properly.

Part Two

The Statutory Requirements and Tax liability

There are several statutory requirements; 10% Goods and Service Tax on all sales which is remitted every three months to the Tax Authority, 4.75% Payroll Tax payable to State Governments based on the entire amount of wages and salaries when the prerequisite threshold has been attained, Corporate Tax at 30 percent on income earned payable annually to the Government and Fringe benefit paid in part quarterly but a general return submitted every year by 30^th of March. Moreover, PAYG from employees’ salaries and wages payable to ATO.

There exist tax liabilities due; GST on sales of $ 583,758, income tax of $ 327, 951 and PAYG of $ 44, 872

Current Compliance Requirements and Liabilities for Houzit

            There are several compliance requirements that Houzit should meet like; maintain proper books of accounts for seven years, submitting annual returns to ASIC, compliance of ASIC’s laid down rules on internal management of Houzit, Directors should serve for the outlined limits and keep a record of resolutions and minutes, have their financial statement audited and submit them to the relevant authorities.

Accounting Software Applicable to Houzit Pty Ltd

MYOB Essential is an ERP offering solution for all sizes of business. It has accounting modules ranging from invoicing, tax management, payroll processing, multi-user characteristic, and reporting among others. Moreover, the ERP offers cash flow management, remote access, sending payslips to employees via email, payable, and receivables capabilities.

XERO is another accounting software that offers financial management solutions to businesses and helps in identifying the cash flow of a firm in real-time and has additional features like quotes, bank reconciliations, inventory management, and invoicing among others.

Based on the information provided above, I would recommend MYOB as it offers remote access to financial data thus enhancing decision making anywhere.

Principles of Accounting in Developing Budgets

Matching principle; this norm confers that costs should be acknowledged on the same period the respective revenues are generated. This is used to ensure there are proper reporting and transparency in the books of accounts

Account groups; this is the summary of financial records according to the master records and highlights the number of pauses from which such accounts are made in the general ledger. In preparation of budgets, Houzit has relied on the past performance of the company to come up with future budgets.

Periods; differentiating accounting timeframe will help the company to differentiate results to enable decision making and evaluation

Probity on Budget Preparation and Revision

            Probity is witnessed ethical behavior determined by complete and confirmed integrity and honesty during the budgeting process. Responsibility is needed when adopting approaches that require expertise during budget preparation and decorum should be observed throughout the budget-making process but should not be a reason to evade genuine concerns. Lastly, conflict of interest is vital when making budgets and should be avoided by all means.

 Items to Add to the Budget

The following expense line items should be included in the budget; training and development fees, pension, medical cover and travel and accommodation among others

Internal Controls

Some of the internal controls to consider are; recording of discounts allowed, have a proper authorization protocol, maintain an asset register, reconcile Cash register daily, separation of duties, and maintain a duty rooster to eliminate fraud.

Audit trails;

            Have serialized cash receipts books, invoices, and other official financial documents, check on timesheets authorization process, and carry out debtors circulations to confirm the actual amount receivable.

Task Two: Budget Reviewing and Monitoring

Income Statement Variance Report

Table 5. Income Statement Variance Report

Cash-flow Variance Report

Table 6. GST Cash-flow Variance Report

Debtors Analysis

Table 7. Debtors Analysis

Issues

Table 8. Issues in the Houzit Pty Ltd Case Study

Variance

There is significant variance in interest expense which could have resulted from increased sourcing of debt to cover the operations of the firm during the recession period. Advertising expense has a huge variance obtained from the underutilization of the allocated amount of $ 200,000 to $150,000. Another item is Tax on a Luxury car bought which has been recognized in the first quarter of operation.

Performance

Generally, Houzit had not performed as expected but they have managed to make a profit as the anticipated net income was negative and the results are unfavorable.

Recommendation

The company should consider purchasing accounting software that will help them especially in scenarios where information is misrepresented like in the case of SGHT payable where the amount was wrongly estimated. The company should also reduce the cost of advertisement especially at these difficult times of economic depression.

Conclusion    

Houzit’s management should consider adopting suitable strategies to achieve the required growth in terms of sales and net income. Proper pricing techniques should be applied to enhance sales and market penetration. The advertising expense should be matched with the income to offer proper reporting and maintain proper books of accounts that reflect the true and fair view of the company.

Role Play

Jim: Good Morning Everyone.

Head of Finance: Good Morning, Sir,

Jim; is everything in order?

Head of Finance; everything is okay sir,

Jim; how is the company doing based on financial statements?

Head of Finance; Sir, we are faced with a cocktail of results due to the economic recession we are facing at the moment.

Jim; any areas of improvement we can explore?

Head of Finance; Yes sir, we can control our production costs, reduce our advertising costs, and reduce borrowing so as increase our profits.

Jim: Okay, that fine with me.