Student: Marina Corso Neto

Student Number: S40048127

Teacher: Natasha Bransby
Assessment: 2

Finance 1

Part A – Written or Oral Questions

1. In your own words provide a short definition of the following terms (in your
own words – simply copying from the internet will result in zero marks): (2 marks
each)

a. Assets: Are things that the company owes and which can have future incomes and
can be measured in money. It could be the company cash, investments, inventory,
supplies, land, buildings, equipment, and vehicles.

b. Liabilities: if assets are the things that the company owes the Liabilities are the
opposite so it is what the company has to pay for example goods or services. Liabilities
it is an obligation.

c. Equity: Indicate personal assets that the company has for real, so if the company has a
car and owe the bank certain amount, the total that the company has paid for that car it
is the equity and not the total value of the car.

d. Cost of sales: It is the total of all costs used to create a product or service.
e. Income: It is all the money that come in, could be from the sale of goods or for the
services that the company has done.

e. Income: Money received on regular basis

f. Expense: It is what the company needs to pay, for bills service or equipment, energy,
etc.

2. For each of the above provide an example related to the hospitality industry.
(2 marks each)

a. Assets: if hotel it could be rooms, restaurants, spa, including employees. Ex: A

building that a Hotel is settles, the company is having incomes through hotel services.

b. Liabilities: Debts, the energy bill that needs to be paid for the restaurant, the staff’s
wages that need to be paid.

c. Equity: The total value or benefit left after deduct expenses. Ex: A restaurant has a
car that is used for internal services but this car has not being paid all the restaurant still
owe the bank a certain amount so the equity is the amount that already was paid for the
car not the full car value.
d. Cost of Sale: For a retail business, for example, the cost of sale is the purchase price
of the item. A restaurant sells a dish that cost certain amount to be made, the company
need to buy the ingredients that is used to make that dish and need to pay the chef so the
total cost of sale will be all the cost to make the dish including profit.

e. Income: Money received on regular basis , for example the total money that it is
made in a restaurant during a day for selling dishes or drinks.

f. Expense: –It is for example the energy bill, the staff’s wages or the rent that need to
be paid for a restaurant.

3. What is the first and last day of the Australian financial year? Are there any
other reporting periods observed by hospitality businesses? (4 marks)

Financial year: 01 July-30 June

Tax season: 01 July- 31 October

4. Financial Reporting has two methods of accounting. They are: (2 marks)

Cash Basis and Accrual Basis

5. Explain the two methods and give examples of which reporting method can be
used by what size organisation. (6 marks)

Cash Basil:
Companies record expenses in financial accounts when the cash is actually laid out, and
they book revenue when they actually hold the cash in their hands or, more likely, in a
bank account. For example, if a painter completed a project on December 30, 2016, but
doesn’t get paid for it until the owner inspects it on January 10, 2017, the painter reports
those cash earnings on her 2017 tax report. In cash-basis accounting, cash earnings
include checks, credit-card receipts, or any other form of revenue from customers.
Smaller companies that haven’t formally incorporated and most sole proprietors use
cash-basis accounting because the system is easier for them to use on their own,
meaning they don’t have to hire a large accounting staff.
Accrual Basis
records revenue when the actual transaction is completed (such as the completion of
work specified in a contract agreement between the company and its customer), not
when it receives the cash. That is, the company records revenue when it earns it, even if
the customer hasn’t paid yet. For example, a carpentry contractor who uses accrual
accounting records the revenue earned when he completes the job, even if the customer
hasn’t paid the final bill yet.
Expenses are handled in the same way. The company records any expenses when
they’re incurred, even if it hasn’t paid for the supplies yet. For example, when a
carpenter buys lumber for a job, he may very likely do so on account and not actually
lay out the cash for the lumber until a month or so later when he gets the bill.
All incorporated companies must use accrual accounting according to the generally
accepted accounting principles (GAAP). If you’re reading a corporation’s financial
reports, what you see is based on accrual accounting.

6. Explain the difference between fixed costs and variable costs. (2 marks)

Fixed costs: It does not vary with the volume of production. A fixed cost does not
change with the amount of goods or services a company produces. It remains the same
even if no goods or services are produced.

Variable Cost: It is a company's cost that is associated with the amount of goods or
services it produces. A company's variable cost increases and decreases with the
production volume.

7. Give an example of each of the above in the hospitality industry (2 marks)

Fixed Cost: For example the amount that is paid to rent a place where a restaurant is, the
rent does not vary even if the restaurant does not sell anything or even if the restaurant
sell lots more it is fixed cost remains the same.

Variable Cost: For example, if a restaurant produce certain dish and the cost to produce
that dish is 10 dollars and in a month, this restaurant sold 2.000 dishes their cost would
be 20.000, 00 dollars but in the next month they sold only 1.500 dishes so their cost
would decreases from 20.00,00 to 15.000,00 dollars. The variable cost change from
20.000,00 to 15.00,00 in this example.
8. What business performance indicators and benchmarks could be used for
decision making purposes in the hospitality industry? (3 marks)
Here is a series of examples of the main Key Performance Indicators to monitor and to
benchmark the performance of the different departments

Hotel for example:

Accommodation (Rooms): Average Room Rate, Occupancy Rate, Revenue per
Available Room, Cost per Occupied Room, Labour Cost Ratio

Restaurant for example:Cost of Sales Ratio, Gross Profit Ratio, Average Spend per
customer, Labour Cost Ratio

Profitability like Operating Profit Ratio and Net Profit Ratio

Liquidity; Current Ratio, Average payment period and Average collection period.

9. Match the following sorts of financial information with their definition:

a. Source documents = iii original documents in paper form that prove a
transaction has taken place
b. Journal entries = vi a basic document that details the financial transaction od
a company
c. Transaction reports = iv report detailing specific information, such as
EFTPOS and banking records
d. Account summaries & balances = ix these can be obtained from the bank,
and should maintain strict vigilance over
e. Balance sheet = ii shows assets, liabilities and owner’s equity
 f. Profit & loss statements = viii shows the revenue and expenses of a business
over a period of time
g. Invoices = v details products and services provided to a customer
h. Budget reports = vii details budgeted figures compared to actual figures
i. Expenditure reports = i detail budgeted spending vs actual spending

10. Why is it important for a hospitality business to review the above types of
financial information regularly? (3 marks)

Running a business requires owners to carefully plan and review their finances. Most
companies use some form of accounting for identifying, measuring, analyzing and
reporting their financial information. Accounting tools may include budgeting, financial
statements, forecasts and other tools for managing financial information.

By using financial ratios you can assess where your business is underperforming, and
judge the effects changes in one area will have elsewhere.

Monitoring figures closely will allow you to maximise efficiency and minimise waste,
which will help your business in the long run.

Best practice financial management involves planning and forecasting financials based
on the strategic goals of the business, and regularly reviewing actual performance
against forecasts. To conduct a financial analysis of the business, need to analyse the
current financial statements, including profit and loss and cash flow. Look for trends,
such as declining sales, that may put the business at risk, and think about the impact
they could have on the business's financial performance.

11. What are the basic rules underpinning double-entry accounting? (7 marks)

Double-Entry

Except for some very small companies, the standard method for recording transactions
is double-entry. Double-entry bookkeeping or double-entry accounting means that every
transaction will involve at least two accounts.

Every transaction has two effects. For example, if someone transacts a purchase of a
drink from a local store, he pays cash to the shopkeeper and in return, he gets a bottle of
dink. This simple transaction has two effects from the perspective of both, the buyer as
well as the seller. The buyer's cash balance would decrease by the amount of the cost of
purchase while on the other hand he will acquire a bottle of drink. Conversely, the seller
will be one drink short though his cash balance would increase by the price of the drink.

Accounting attempts to record both effects of a transaction or event on the entity's

financial statements. This is the application of double entry concept. Without applying
double entry concept, accounting records would only reflect a partial view of the
company's affairs. Imagine if an entity purchased a machine during a year, but the
accounting records do not show whether the machine was purchased for cash or on
credit. Perhaps the machine was bought in exchange of another machine. Such
information can only be gained from accounting records if both effects of a transaction
are accounted for.

Traditionally, the two effects of an accounting entry are known as Debit (Dr) and Credit
(Cr). Accounting system is based on the principal that for every Debit entry, there will
always be an equal Credit entry. This is known as the Duality Principal.

Debit entries are ones that account for the following effects:

 Increase in assets
 Increase in expense
 Decrease in liability
 Decrease in equity
 Decrease in income

Credit entries are ones that account for the following effects:

 Decrease in assets
 Decrease in expense
 Increase in liability
 Increase in equity
 Increase in income

Double Entry is recorded in a manner that the Accounting Equation is always in

balance.
Assets - Liabilities = Capital

Any increase in expense (Dr) will be offset by a decrease in assets (Cr) or increase in
liability or equity (Cr) and vice-versa. Hence, the accounting equation will still be in
equilibrium.

To illustrate, here are a few transactions and the two accounts that will be affected:
12.Research an accounting software package used in the hospitality industry, and
describe the general features. (5 marks)

- Oracle JD Edwards software

This component can serve businesses of any size. The system is horizontal; it
is designed to serve the needs of a wide variety of vertical markets. This
program is scalable and can adapt as the user company grows.
Financial Management offers applications for accounts payable, accounts
receivable, advanced cost accounting, expense management, financial
management and compliance, fixed asset accounting, and a general ledger.
The system can support multiple languages and currencies. The program also
supports International Financial Reporting Standards (IFRS) requirements,
with capabilities such as asset componentization and inventory costing
methods.
Part B – Research Project

1. Provide a short definition for the following terms (in your own words-
simply coping from the internet will result in zero marks):
- a. Ledgers = financial account book or data base
- b. Subsidiary ledgers = special type of account transection
- c. receipt = a copy of transaction
- d. disbursements = form of payment
- e. accounts payable = amounts a company owes
- f. debtors = a person that owe money
- g. creditors = a person that lent money
- h. cash flow = money that moving in and out in business.

2. provide a short description of the following Hospitality industry

terminology:
- a. guest account = the master bill in the hotel contain all transactions of both
cash and credit occurred by each resident guest. Guest account will printed
out at the time of guest check- out
- b. inventory = stock Ex. Food and beverages
- c. revenue management = selling the right room to the right client at the right
moment at the right price.
3. What are the GST reporting requirements for a hospitality business?

- If your GST turnover is $20 million or more, you must report and pay GST
monthly.
If your GST turnover is less than $20 million - and we (tax office) have not told
you that you must report monthly - you can report and pay GST quarterly.
- If you are voluntarily registered for GST and you have not made an election to
pay GST by installments, you can choose to report and pay and claim GST
credits annually.
Part C – Case Study:
1. Below is a Balance Sheet for Fat Freddie’s Fab Frogs for 2015 & 2016. From the
balance sheet, and for both years calculate:

Fat Freddie’s Fab Frogs

Income Statement for year ending 30 June

2015 2016
$ $

Sales 124 800 156 000

Less: Cost of goods sold 74 880 93 600

Gross Profit 49 920 62 400

Operating expenses 20 800 24 960

Interest payments 8 320 8 320

Net profit before tax 20 800 29 120

Tax 7 072 9 320

Net profit after tax 13 728 19 800

Fat Freddie’s Fab Frogs

Balance Sheet for year ending 30 June

2015 2016
$ $

Assets

Cash 10 400
Accounts Receivable 41 600 66 560
Inventory 83 200 128 960
Plant & Equipment 228 800 208 000

TOTAL 364 000 403 520

Liabilities

Accounts payable 44 928 46 800

Provision for tax 7 072 9318
Bank Overdraft - 15 600

Owner’s Equity

Retained profit - 19 802

Debentures 104 000 104 000
Ordinary Shares ($2 each) 208 000 208 000
TOTAL 364 000 403 520
1a,b,c,d 2015 :
a. The proportion of the business finances by debt and equity (4 marks)
The business has financed its $403.520 in assets by borrowing $44 928 as short
term finance and $7072 in Tax having a total liabilities of $52 000, and its owners have
contributed $104 000 in Debentures and $208 000 in ordinary shares. This allows us to
calculate the proportions of debt and equity.

Debt Proportion
$52.000 / 364 000 = 14%
Equity Proportion
$312 000 / 364 000 = 8%

b. 2015 The current ratio (2 marks)

To determine this i divided the total current assets by the total current liabilities
$135 200 / 52 000 = 2,6

c. 2015 Gross profit ratio (2 marks)

Gross profit / sales x 100
$49 920 / $124 800 = 0,4 x 100 = 40%

d. 2015 Net profit (before tax) ratio (2 marks)

Net profit / sales x 100
$20 800 / 124 800 = 0.16 = 16.66

1a,b,c,d 2016:
a.2016 The proportion of the business finances by debt and equity (4 marks)

The business has financed its $403.520 in assets by borrowing $62.400 as short
term finance and $9318 in Tax having a total liabilities of $71 718, and its owners have
contributed $104 000 in Debentures and $208 000 in ordinary shares. The business has
also retained $19 802 of profit. This allows us to calculate the proportions of debt and
equity.

Debt Proportion
$71.718 / 403.520 = 18%
Equity Proportion
$331.802 / 403.520 = 8%

b. 2016 The current ratio (2 marks)

To determine this i divided the total current assets by the total current liabilities
$195 520 / 71.718 = 2,72

c. 2016 Gross profit ratio (2 marks)

Gross profit / sales x 100
$62 400 / $156 000 = 0,4 x 100 = 40%

d. 2016 Net profit (before tax) ratio (2 marks)

Net profit / sales x 100
$29 120 / 156 000 = 0.18 = 18.66
2. The CEO of the company has asked you to provide a review of the above
financial information and the ratios. For each ratio provide a brief analysis as to
whether the ratios are positive or negative to the company’s financial status. (8
marks)

2015 : The business owes $44 928 in short term debt and has 10 400 in cash. To pay
its bills it will have to collect cash from customers either by getting them to pay what
they owe (collect on its accounts receivable), or by selling unsold stock/inventory for
cash. Overall the business has $135 200 in current assets
(plus $228 800 in fixed assets), so would seem capable of paying for any unforeseen
debts.

2016: The business owes $62.400 in short term debt and has nothing in cash. To pay its
bills it will have to collect cash from customers either by getting them to pay what they
owe (collect on its accounts receivable), or by selling unsold stock/inventory for cash.
Overall the business has $195 520 in current assets(plus $208 000 in fixed assets) , so
would seem capable of paying for any unforeseen debts.

Comparing 2015 to 2016 the conclusion is:

In other words every one dollar of the sales delivered a gross profit of 40 cents.

The most important figure for a business however is the net profit ratio.
For every dollar of sales the business made a net profit of 16.66 cents in 2015 and 18.66
cents in 2016. This compared the industry average is not a great result, indicates
financial vulnerability to negative market changes and can make it difficult for a
company to fund substantial growth.. The business should look at increasing the net
profit ratio by either increasing prices, or cutting costs.

3. What areas of work operation within the Hospitality industry would the Income
Statement and Balance Sheet apply to? (2 marks)

Like most of our reports now, the results of analysis of profit and loss
statements will apply to the operations of the finance team and company
management

4. Why should appropriate financial information be shared with colleagues? (2

marks)
These days, more and more companies are practicing what’s known as “open book
management.” Literally, that means employers are opening their financial books to
employees and colleagues and its proved that to everyone at the company can yield
positive results.

- It improves accountability : if you don’t set expectations and have a way to measure
their achievement, you can’t hold employees accountable.

- It boosts sales: Being transparent with your financial information can lift up your
finances. Studies found that companies that revealed financial information to their
employees saw a 1 percent to 2 percent sales bump over what usually would have been
expected.
- It makes everyone a stakeholder

Opening the books allows everyone to collectively celebrate successes and fix
problems. By entrusting employees with vital information about the organization’s
financial and operational health, business leaders send a message that they consider
every worker to be a valued partner and stakeholder in their organizations.

- It increases job satisfaction and performance