MAJOR CASE STUDY

PART A Gather data, forecast estimates and prepare the budget.

Alliance Pty Ltd

Instructions:
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You are to prepare a report for the Chief Executive Officer (CEO) in regards to the budget
forecast and your recommendations.
A report template has been provided as part of the organisational policies and procedures.
You are to include a cover letter to the CEO briefly introducing the report.
All policies and procedures must be adhered to.
The budgets must be produced in an automated format. This means setting up the budgets
using the organisational templates and using automated functions where possible.
The budgets must be presented in a professional manner in accordance with the
organisational templates.
Discussion is allowed but the final work must be your own.
The assignment must be submitted in hard and soft copy. Your work will be handed back for
corrections if necessary but the final submission must be 100% accurate.
The assignment must be submitted by the due date. If you are unable to meet this deadline
you are required to write a letter to the CEO explaining why you are unable to meet the
reporting deadlines.

Background
You are the Chief Financial Controller (CFO and an Accountant) for a small private company which
operates in the construction industry as a shop fit out operation. You have a Board of Directors (BOD)
comprising 3 people. You report directly to the Chief Executive Officer (CEO - your teacher). The
CEO reports to the reports to the BOD.
The Board have tasked management with the achievement of a closing cash balance of at least
$55,000 (KPI) in order to meet the capital works required in the following period as this is a KPI in the
strategic plan.
You are to contact the CEO (Your teacher) for clarification of any concerns over the information
presented, you are not to go to third parties for this information in case you are mis-lead or given
incorrect details. In communicating with the CEO must keep a log of this communication and attach
this as Appendix B.
At your senior level, the company also employs a Production Manager, Marketing Manager and an
Administration Manager. Each of those managers has senior staff and operational staff under their
management.
You are presented with the following historical financial statements for the period 1 July to 30 Sept
2013.

PART A Required.
You have been asked to review the information provided and prepare the budgets as required for Alliance Pty Ltd
for following period 1 Oct to 31 Dec 2013 for presentation to the CEO. These are to be included as Appendix
A in your report. You must check the existing data for accuracy and reliability, if the data is not reliable, you must
source the correct data from the relevant stakeholders and negotiate the required information. The budgets
required to be prepared are:
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Sales budget
Revenue budget
Purchases budget
Debtors collection schedule
Creditors payment schedule
Cost of goods sold budget
Operating expenses budget
Cash budget (including worksheet for accounts receivable and payable and GST)
Budgeted Income Statement
Budgeted Balance Sheet (including journals for closing balance sheet balances)

REMINDER NOTE:

Your ability to meet timelines (complete the required budgets on time) will also be assessed.
Other budgets will be required in order to complete the above budgets.
You need to create and maintain communication log (a template has been provided for you).
All budgets are to be prepared using a suitable computer spreadsheet package.
The budgets are to be contained in one spreadsheet file, with each budget on a separate worksheet.
No figure is to be re-typed from a previous/other sheet. Use a formula to obtain subsequent figures. (i.e.
type =, then click on the required figure in the other sheet and enter. This will then return the appropriate
figure in your current sheet.).

FORECASTED INFORMATION
Based on your consultation and negotiations held with the management team and relevant stakeholders, the
following forecasts are provided to enable you to commence the preparation of the required budgets.

Sales were:
o July
o Aug
o Sept

$40 000
$52 000
$48 000

A review of trends and market data indicates that sales are expected to be:
o Oct
$60 000
o Nov
$55 000
o Dec
$59 500

Jan 2014
$59 000

Management fees are expected to increase by 10% for the quarter. The fees are received equally each
month.

Advertising is expected to be 10% of the sales for the quarter (spread equally).

Other selling expenses will be 5% of sales for the quarter (spread equally).

Interest expense will be $1200 per month.

Electricity and water are expected to increase by 20% for the quarter (spread equally).

In line with industry trends and contract reviews, salaries are expected to increase by 5% over the next
quarter (spread equally).

Rent will remain fixed.

Communication costs, printing stationery are not expected to change over the next three months.

The owner, Mr Harvey, plans to withdraw $3000 per month for personal expenses.

All amounts provided are GST exclusive unless otherwise stated.

GST is reported on a quarterly basis.

* Attached is the organisation policy and procedures extract:

Note:

You need to check the estimates and the data for accuracy, reliability and validity.
You must place your written submission through turnitin to check for plagiarism.
You must reference your work using appropriate websites i.e. not Wikipedia, Ask.com etc.

PART B Analyse the Budgets

Upon completion of the budgets, present the set of budgets to the CEO in a report, and fully brief them on how
you went about developing the budgets. In doing so you are required to prepare a report (prepared in accordance
with the organisations reporting procedures) addressing the following matters:
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You need to explain to the CEO, who was likely to be involved in developing each budget? I.e. Who did
you need to contact in order to obtain the necessary information for the budget/s you prepared? Be
specific. You may want to present this as a table.

The Board communicated a requirement for a closing cash balance for the period to be at least $55,000
(KPI/Milestone).
a.
b.

Explain to the CEO, what the variance of the closing cash is?
You need to provide recommendations to the CEO in regards to achieving the required closing cash
balance?
o In answering this this you need to analyse whether the estimates of future cash flows,
costs and revenues are attainable/realistic, how you can provide verifiable evidence of
those and how possible market conditions and trends can impact this milestone.

Briefly discuss how you negotiated with the relevant stakeholders to achieve maximum outcome in
relation to the new budgets and the required closing cash balance. I.e. You need to consider how you
can effectively encourage staff to meet the milestones/benchmarks set in this budget.

Briefly discuss how organisational goals shape budgets and therefore, determine the development of
budgets? Provide an example of a goal that could have been made by Management, which is reflected
in the Alliance Budget.

You are required to follow the ASXs Best Practice Principles in Corporate Governance.
(http://www.asx.com.au/documents/asx-compliance/cgc-principles-and-recommendations-3rd-edn.pdf,
ASX, viewed 2nd July 2014)

a.

Referring to the best practice guide, explain to the CEO (in your own words), what corporate
governance is.

b.

Explain to the CEO, 2 recommended Principles of Corporate Governance as they relate to

budgeting, finance and forecasting as outlined in the above document. (Relate those to the case
study with examples so your CEO understands what you mean and how this affects the company).

Research and forecasting is a vital component in preparing accurate budgets.

a.
b.
c.
d.

Discuss one forecasting technique that you could have used in the preparation of your budgets.
Identify limiting factor/s of the forecasting technique you selected.
How could you counter the limitation/s identified in b. above?
Identify at least 3 different sources of verifiable evidence / data which you could have accessed to
ascertain the impact of market trends to assist you in the preparation of the budgets.

Identify and discuss at least 3 assumptions that were made in the preparation of the budgets for Alliance
Pty Ltd.

Budget reviews/audits should occur periodically. Once the new budget is set, it should be reviewed
/audited periodically.
a.
b.

Provide a recommendation to the CEO as to when this budget should be reviewed and why?
Advise your CEO of 3 specific examples of external factors which might change the review date or
change which might affect the budget.

Briefly describe the principles of double-entry bookkeeping and accrual accounting. Provide an example
to illustrate your answer. (hint: include the general accounting equation).

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Financial risks and protection strategies are of particular interest to the CEO due to the current market
conditions. In budgeting, variances can occur in the budgeting process, you need to explain to your

CEO how you are going to control the budget (i.e. Give at least 2 ways / principles of controlling
budgets) and what the likely risks are of not undertaking those recommended control strategies.
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As an Accountant, you have certain Codes, Practices and Responsibilities. Explain to the CEO the
following:
a.

What your ethical considerations are as an accountant, in relation to the discharge of your
professional conduct. ( In your explanation to the CEO, ensure you address conflict of interest,
confidentiality and disclosure).

b.

How you are going to go about maintaining your knowledge and currency of budgeting principles,
procedures and practices

c.

How you ensured the strength of the assumptions and the forecast reliabilities you used in
preparing budgets. You can provide examples from the case study and from the internet to illustrate
your response. Be specific.

Organisation policies and procedures manuals (Extracts)

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Budget preparation (Extract)

Budgets must be presented using the chart of accounts.

Income Statements and Balance Sheets are to be presented as 3 columns.
As a non-reporting entity, Mr Harvey prefers to be presented with GST as paid, collected and payable in
the current liabilities.
GST is applied using the accruals method.
All monetary units should be rounded to the nearest dollar (within your spreadsheet function) before
printing your spreadsheets. DO NOT manually round.
Formulas are to be used wherever possible. (Do not use your calculator to provide an answer to type
in.).

Sales:
Sales are generally calculated to be 25% cash and the remainder credit.

Collections from accounts receivable are:

Month of the sale

Month following month of sale

Second month after sale

35%
50%
15%

Opening/closing inventories:

Alliance uses a 200% mark-up on cost of goods sold to set selling prices.

Alliance requires a closing stock figure at the end of each month equal to 75% of the following
months cost of goods sold.

Purchases:

All purchases of stock are made on credit.

Purchases of stock are paid for in the month following the purchase.

Expenses:

Expenses are paid in the month in which they are incurred.

Depreciation is 15% of written-down value on the reducing balance method.

Accounting for Salaries and Wages

Superannuation
The superannuation expense is to be allocated to individual cost centres i.e. the cost centre where the
employees salary costs have been allocated. Superannuation is to be applied at the current legislated
rate.

Business Templates and Data storage

Excel template provided.

Business reporting template provided

Budgets are to be saved to your computer and USB.

Name each file with the Assessment number and your student number

For example: FNSACC507A_Assessment01_Casestudy_yourstudentnumber

Chart of Accounts
There is an extract of the Alliance Pty Ltds Chart of Accounts located in the Excel workbook template area.
You are to create new codes and titles as required to suit the operations of the business. The Profit and Loss
and the Balance Sheet MUST always be classified.