Case Study Analysis – Molly Smith, Anthony Bowman, LMB Motors

Communication Strategies for Molly Smith

  1. Repairing and maintenance expenses including fuel cost are allowed as deduction. The fuel bill as well as other vouchers supporting the expenditures must be properly maintained in order to get deduction for these expenses.
  2. Using quality control and management system will be helpful in controlling expenditures on wages, vehicles and telephone.
  3. The accountants should use clear and specific terms in the recommendation. No vogue words shall be used in recommendation.
  4.  

Extract of financial plan of ABZ Limited

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ABC Limited is an Australian entity involved in the business of manufacturing clothes. Established in 1997 the company has achieved significant success over the period of last 20 years. The company currently operates in the domestic market. However, with the objective of supplying its clothes in different parts of the world the company is looking to expand its operations in Asia and Europe specifically.

The company has decided to borrow significant amount of money from the banks and financial institutions along with issue of additional shares to the public to expand its operations in different parts of the world. The company will utilize its funds very carefully to ensure that maximize use of its funds are possible. The borrowing amount shall be invested in expansion only after conducting repeated investment appraisal analysis on different projects. Only the projects expected to earn positive returns will be accepted in the future (Al?Hadi, Chatterjee, Yaftian, Taylor & Monzur Hasan, 2017).

  1. Revenue generation from supply of goods and services, profit from business, transfer of assets are the main areas where taxation issues will arise.
  2. The client should have an effective internal control system in place to manage different risks expected to arise from business operations.
  3. Short term finance options include cash credit from banks, bank overdraft facility and short term loans from banks and financial institutions.
  4. A proposal must cover each and every aspect of customer service management including after sales customer service to ensure there is no shortfall in customer service.
  5. Five aspects of legislation protecting the rights and responsibilities of clients are as following:
    1. Regulations for consumer contracts.
    2. Consumer Credit Act.
    3. Consumer Protection Act 1987.
    4. Consumer Rights Act.
    5. Protection of consumers from unfair trading.
  6. Financial statements including Income statement, Balance sheet and cash flow statement apart from Board of Directors report in case of a company are the main sources of information to take decision of investment and financing.
  7. In regulatory obligation section the compliance obligations are found. Following are the common forms resulted from Government financial policies:
    1. Financial regulatory requirements.
    2. Accounting and reporting requirements.
    3. Accounting standards.
  8. The relevant legislations contain all necessary instructions to be followed to comply with the obligations. Amendments contain all information as to the changes in legislations.
  9. The statutory rates applicable for different charges shall be used to calculate the liabilities of the clients in respect of state government charges.
  10. List of the five charges and taxes collected by State and Territory Governments are as following:
    1. Goods and Services taxes.
    2. Property taxes.
    3. Departure tax.
    4. Payroll taxes.
    5. Inheritance tax.
  11. Using different functions of a spreadsheet such as filter, sorting, use of ‘IF’ function, mathematical functions and other numerous functions different assertions can be made from financial data. This will help in identifying key trends in financial items.
  12. Business expenses are allowed as deduction in computing taxable profit of business. However it is important that such expenditures must be spent in order to earn income from business.
  13. The income of a trust is exempted from tax as compared to income of a business. Hence, there is significant tax advantage of a business which is managed on behalf of a trust.
  14. Forecast return is the estimation of expected return on investment or from a project. It is used to appraise investment projects.
  15. A not for profit organization is an organization conducts operations for the social benefits and purposes and does not have the objective of earning from its activities and operations. The statutory returns required as per the relevant legislations must be prepared and filed by such organizations.
  16. Forecasting statements can be prepared along with mission and vision statements to present the performance objectives.
  17. Direct and indirect methods.
  18. Corporations Act 2001 and the relevant accounting standards must be followed (AASBs).
  19. Finance and accounting experts.
  20. Information about the finances of an organization is needed.
  21. How the finance of an organization has been managed, i.e. the sources used to collect funds and the projects where such funds are invested.
  22. The changes made in the existing financial reporting standards shall be noted down along with the new accounting rules and regulations used to prepare the financial reports.
  23. Debt to equity and capital gearing ratios are used to measure financial stability of an organization.    
  24. Penalties are imposed on the clients for not meeting reporting deadlines of ATO.
  25. Net present value method considers the time value of money and provides expected net benefit or loss from a project in the future. Pay-back period method does not consider the time value of money and only provides the pay-back period of initial investment of a project.
  26. It is important to follow the legislative requirements. Secretary’s financial management instructions provide all relevant details as to the legal aspects to be followed.
  27. Primary and secondary sources of information are available on financial products and markets.
  28. The possible risks include failing to achieve the financial objectives, failure of a project, loss from a financial projects, excessive expenditure on a project than expected. In order to manage these risks it is important to manage a project effectively.

Answer 2:

The objectives of the client, i.e. Anthony Bowman includes reducing his income tax liability, maximizing his revenue from veterinary services and to make optimum use of business assets to earn maximum profit. 

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The business assets include equipment, vehicles, building and inventories.

The business is sole proprietorship business and is small in size.

As mentioned earlier that the client provides veterinary services and it is a sole proprietorship business.

Internal reports prepared by the part time administrative staff is the extra information provided in the document (Schaltegger, Burritt & Petersen, 2017).

Task 2: 

Answer 1:

Dear Molly,

Being an accountant it is the responsibility of mine to provide you with best possible accounting services. Please provide the following details to ensure that appropriate services can be provided to you:

  1. When was the business established?
  2. The financial information of the business for last five financial years.
  • What accounting information system is used to record all financial transactions in the books of accounts?
  1. Are appropriate accounting standards followed in maintaining books of accounts of the business?
  2. How the change in business structure expected to impact the business?

The business is growing at a rapid speed thus, it is better for the client to incorporate the business. In order to form a company to aid the rapid growth of business the client must comply with the r requirements of Corporations Act 2001 in the country.

Initially, it is essential to comply with the all requirements to register the business as a company by following the requirements of incorporation. Once, the business is incorporated all the legislative requirements must be followed.

In case of change of business address it is important to inform the registrar of companies of respective jurisdiction about the changes in business address in an appropriate form.

Financial Analysis for LMB Motors

Answer 2:

  1. The management and Board of Directors are responsible to prepare and present the financial statements properly. Thus, they should be consulted with to verify the accuracy of financial information. Audit is to be conducted on the financial statements to assess whether these are correctly reflecting the financial performance and position of LMB Motors.
  2. Sales, gross profit and net profit all have increased significantly in 2015 compared to the corresponding amounts of previous year. Gross profit has increased to $455,000 in 2015 from $380,000 of 2014. Similarly, the net income has increased to $91,000 in 2015 from $76,500 of 2014. Reduction in long term investment however, has reduced the total assets of the company in 2015 as compared to the total amount of assets of 2014
 

2015

2014

 Debt to equity ratio 

 

 Debt funds (Long term liabilities) 

        100,000.00

        200,000.00

 Total owners’ equity

        829,500.00

        787,500.00

     

 Debt to equity ratio 

                     0.12

                     0.25

     

 Return on investment ratio

 Net income 

           91,000.00

           76,500.00

 Average owners’’ equity 

        808,500.00

        787,500.00

     

 Return on investment (%)

                   11.26

                     9.71

     

 Current ratio 

 

 Current assets

 550,000.00

 533,000.00

 Current liabilities

 210,000.00

 243,000.00

 Current ratio 

                     2.62

                     2.19

The company needs to invest further in new projects to continue growing at the current pace in the future.

  1. To pay income tax as per Income Tax Assessment Act 1997. To comply with the requirements of Corporations Act 2001 are two of the main statutory requirements for the company.
  2.  

Summary of financial information:

The financial statements of LMB Motors show that the performance of the company as well as its position have improved significantly in 2015 compared to its performance and position in 2014. Sales in 2015 has grown by almost 25% from 2014 to $1,498,000. The gross profit has also increased by $75,000 in 2015, i.e. an increase of 19.74% from gross profit of 2014.  The increase in net income after tax is $14,500 to $91,000 in 2015 compared to the net income of $76,500 of 2014. Thus, the financial performance of the company has improved significantly from last year. All aspects of financial performance have shown improvement in 2015 compared to2014.  

The following ratios calculated from the financial information will also highlight the improvement in the performance and position of the company in 2015.

 

2015

2014

 Debt to equity ratio 

 

 Debt funds (Long term liabilities) 

        100,000.00

        200,000.00

 Total owners’ equity

        829,500.00

        787,500.00

     

 Debt to equity ratio 

                     0.12

                     0.25

     

 Return on investment ratio

 Net income 

           91,000.00

           76,500.00

 Average owners’ equity 

        808,500.00

        787,500.00

     

 Return on investment (%)

                   11.26

                     9.71

     

 Current ratio 

 

 Current assets

 550,000.00

 533,000.00

 Current liabilities

 210,000.00

 243,000.00

 Current ratio 

                     2.62

                     2.19

As can be seen that from debt to equity ratio to current ratio of the company all have improved significantly in 2015. This shows that not only the company has performed better in 2015 but it has also improved its financial position. The debt to equity ratio has improved to 0.12 indicates improvement of long term solvency of the company. The improvement in current ratio indicates improved liquidity position of the company.

Running a business in uncertain future is never easy. In order to manage the risk of business such as default of debtors, loss from accidents, fire and other business risks, the management should make effective use of insurance contracts. Having insurance of important assets would help the company to avoid major disaster in the future.

In case of making investment, the company must assess the desirability of different investment options by conducting investment appraisal techniques on these investment options. Only the profitable investment options should be selected by the company.

The company has to comply with the requirements of Corporations Act 2001, ITAA 1997. The company has the option of issuing ordinary shares to the public to collect long term capital as well as long term borrowing option to arrange funds for long term purposes.

References

Al?Hadi, A., Chatterjee, B., Yaftian, A., Taylor, G., & Monzur Hasan, M. (2017). Corporate social responsibility performance, financial distress and firm life cycle: evidence from Australia. Accounting & Finance.

Schaltegger, S., Burritt, R., & Petersen, H. (2017). An introduction to corporate environmental management: Striving for sustainability. Routledge.