Fnsacc501 Provide Financial And Business Assessment Answers

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Tax Liabilities reduction goals

The information which is presented in this assessment is obtained by a process of interview which is conducted with the board of directors of the business. The board of directors of the company are responsible for formulation of policies and different strategies of the business and therefore they are the best persons to get information about the working of the company.

The tax liabilities of the company as shown in the annual report for the year 2017 is shown to be $ 2,384,500 which is shown in the financial statements. The tax liability of Kogan Ltd has increased considerably when the tax liability of the business is considered for the previous year. The tax liability of the company is shown to be $ 622,072 as per the financial statements of 2016. The tax expenses which is shown in the income statements of the company is comprised of both current tax expenses and deferred tax expenses of the business. The tax reduction policies of the business involve effective optimization of taxes as per the policy of the management. The management of the company has already employed competent accountants and tax advisor so as to ensure that all the provisions and legal requirement are followed when the business is assessing the tax which the business needs to bear at the end of the financial year. The GST components of the business which are concerned with operating and investing activities which are either to be paid or received from the ATO is shown in the operating cash flows of the business. The management of the company will also be availing the various deductions which are available to the company if certain conditions are met.

Wealth Accumulation

As per the annual report of Kogan ltd, the management of the company focuses on building up effective customer relationship and also improve the quality of the product which is provided by the company. In addition to this, the management is committed towards generation of wealth as per the annual report of the business. The most important role in the accumulation of wealth for the business is that of the management who are involved in the planning process of the business. The wealth accumulation of the business can be clearly identified from the annual report of the business which shows the asset such as property plants and equipment which are under construction as shown in the notes to account section of the annual report. As per the annual report of the company for the year 2017, the annual report specifies that the effective performance of the business during the year. Kogan company is engaged in a variety of business and therefore has an effective portfolio of the services which is provided by the company (Kogancorporate.com. 2018).

Asset Development

The assets which the company possess in the annual report of the business as per the year 2017. The assets of the business are shown in the profit and loss statements as prepared by the business. The business has purchased assets during the year as shown in the notes to accounts of the company. The business also had purchased assets from Dick Smith in the year 2017. The business has shown significant amount of profit as shown in the annual report of the company for the year 2017 which has increased tremendously in comparison to previous year’s estimate which shows that the management of the business is focused towards generation of wealth for the shareholders of the company.

Legal and Financial Requirements

The legal requirement of the business focuses on the compliance of all the legal regulation which is applicable to the company as introduced by the government. In addition to this, the annual reports of the business show that during the ordinary course of business, the company has faced law suits which are other than for tax rules compliance. The code of conduct of the business and management policies of the business are all governed by the legal requirement of the business.

The financial regulations of the business are as per the standards of accounting which are established by AASB which are applicable on the business. The other common accounting policies and conventions which are followed by other businesses belonging to the same industry is also applicable to the company.

Personal Investment Strategies

As per the cash flow statement which is prepared for Kogan ltd, the business has made investment in intangibles. In addition to this, the management of the company is expecting investments in the business. The strategies of the business is to maximize the investments of the business. The management expects to increase the investments of the company in the coming year 2018.

Business Registration

In order to operate in the market, the business needs to register with the authorities. The registration of the business needs to be handled by the legal team of the business and the business also needs to comply with all rules and regulations of the corporation act.

Insurance Needs

The business is engaged in a variety of business, therefore the need for insurance for the overall business is important. The insurance needs of the business are quite evident as the business has various diversified business and certain retail and other service units might be subjected to risks for which the business needs insurance cover.

Tax Issues and Requirements

In order to achieve the long-term goals and business objectives of the business, the management of Kogan ltd need to comply with the legal requirements of tax. Due to the diversified business of the company, various taxes are applicable on the company which the business needs to consider in order to proceed with the business and overall operation of the company.

Implementation Strategies 

Strategies will be adopted by the business in order to ensure that all other strategies of the business are effectively implemented which will be formulated by the top-level management. The management has already as per the annual report of 2017 established different committee which will be looking after different roles of the business. In addition to this, the management can implement performance report on a monthly basis so as to review the performance of the business as per the goals and objectives of the business.

Importance of Continuous Review of Financial Position

In order to ensure that the financial position of the business is stable and the policies which are formulated by the business are appropriate, continuous review of the financial position is needed. The market and the business environment are dynamic in nature and changes continuously therefore it is essential that the financial position of the business is review regularly.

Completeness of the Annual Report of Kogan ltd

The annual report of the company shows the business model of the company which is to ensure that the best quality of online services is available to the customers. The management of Kogan ensures that the business uses the best technologies and online technologies for retail services. The business model of the company focuses on cutting out the benefits of the middle men and ensure that the clients get the best deals for the products.

Changes in Financial Position

The financial position of the business is shown in the annual report of the company which is engaged in retail business. The management of the company has brought about changes in the technological aspect of the business and thereby also improved the operational structure of the business. The profits of the business have significantly increased from the results of 2016. The profit which is earned during the year is shown to be $ 3,739,865. The business should plan aggressive strategies to further increase the revenues of the business.

Accuracy of the Financial Data

The accuracy of the financial information by consulting with the auditors of the business and also by reviewing the auditor report which is provided in annual report of the business during the year 2017. The auditors of the company are KPMG and the auditor report shows that the financial statements are prepared according to corporation act 2001 and is also showing true and fair view. The accuracy of the financial information can be confirmed by reviewing the treatments of the various items which are shown in the annual report of the business and ensure that the same comply with the relevant standards to which the treatments are associated with.

Vertical and Horizontal Analysis of Income Statement of Kogan Ltd  

Profit and Loss Statement and Debt Equity Ratio

As per the profit and loss statement which is shown in the annual report of the company for the year 2017 shows that the profitability of the business has significantly improved from the performance of previous year. The profit of the business has increased from $ 809,149 in 2016 to about $ $ 3,739,865 in 2017. This shows tremendous performance of the business and also depicts operational efficiency of the business. The computation of debt equity ratio of the business is shown below:  

The debt equity ratio shows that the proportion of debt in the capital structure mix is much more than the equity mix in the capital structure of the business. The business as per the annual report of the company for the year 2017 shows that the business does not utilizes any borrowings in the capital mix of the business. Therefore, the business mostly relies on the equity capital as the main source of finance for the activities of the business.

Problems Faced by Kogan Ltd

The major risks or problems which are faced by the management of Kogan ltd are clearly indicated in the annual report of the company. The retail environment and economic condition in the country is not stable and things can be difficult for the business. In addition to this, Kogan company faces intense competition in the market as clearly indicated in the annual report of the company as per 2017 report.

Analysis of Cash flow Statement

The cash balance of the business has decreased significantly from the previous year which shows the liquidity position of the business has improved significantly as shown. The reasons for such an increase in the cash flow of the business can be attributed to the following reasons:

• Increase in the revenue receipt from customers of the business from previous year which is shown to be $ 291.236,987.
• Net proceeds which is received by the business from the new issues of shares which is undertaken by the business.
• Repayment of debts which amounts to $ 4,900,000 which is more than previous year payments.

Analysis of Performance of the Business.

As per the annual report of the business, the profitability of the business which is shown in the income statement of the business has increased as shown in the annual reports of the company. The rise in the profitability of the business is due to the improved operational performance of the company and better sales generation for the business. The profit of the business has increased to $ 3,739,865 which was just $ 809,149 in 2016.

The financial stability of the company is also appropriate as the company is engaged in retail business which has various diversification. The efficiency of the business is also considered to be good when measured with the operational capacity of the business.

Increase in Profits

As per the question, the business is able to consolidate the profits of the business effectively and there has been a significant increase in the profits of the business. The income statement of the business shows considerable rise in the profits of the business.

Funds Requirement

The annual reports of the business clearly indicate that the management of Kogan ltd uses more of equity capital and does not rely on the debt capital of the business. The capital structure which is used by Kogan ltd for the year 2017 shows that the capital is made up of only equity capital funds and does not incorporate debt capital funds. This suggest that the business should use more of Debt capital to attain a favorable capital structure for the business and for any funding required for any future operations.

In order to clearly explain the performance of the Kogan ltd, significant ratios are calculated. The ratios which are calculated are financial indicators as to how the business is performing and such ratios include profitability ratios, liquidity ratios and stability ratios. The calculations for the same is shown in the table format below: 

The net profit margin of the company as calculated shows that the same has increased in comparison to previous year’s results. The profits of the business have increased from previous year estimate due to the rise in revenue which is received from investments. The overall profits from operations has decreased as per the estimates of previous year. The return on assets and return on equity has also increased which are positive indicators of the business as the return which is received from the use of the assets and the returns which the business generates for the shareholders. The earnings per share of the business has reduced as shown in the annual report of the company which signifies that there is fall in dividends of the business.

The current ratio of the business shows that the liquidity of the business has significantly improved in comparison to previous year’s estimates. This shows an improvement in the liquidity position of the company. The debtor and inventory collection period which shows the efficiency of the business in analysis of the operational capabilities of the business. Both the results show favorable outcome for the company as both have reduced. This shows the operational strength of the business in collection of funds and effective use of inventories. The debt ratio of Kogan ltd is zero as the borrowings of the business for the year 2017 is shown.

Corporate Governance Principles

The management of Kogan ltd is engaged in provided and formulating the best policies for the purpose of effective corporate governance of the business. The corporate governance statement which is shown in the annual report of the company as per 2017 shows that the business follows the Corporate Governance Principles as set out by ASX council.

The role of the board of directors of the business are responsible for the overall management of the company and also for supervising whether the policies which are implemented by the company are followed or not. The strategies of the business are formulated in such a way such that the expectations of the shareholders are always given priority and the overall activities of the business are conducted in such a way that all the requirements of ASX’s principles are followed. In addition to this, the board has established all significant committee which play a vital role in the overall management of the business. The management of Kogan ltd complies with the standards of accounting as prescribed by AASB and also follow the tax regulations established by ATO as is evident from the annual reports of the company.

Risk faced by the Company

The company is engaged in the business of retail industry and the business faces risks of fluctuations in markets. The major risks which the business faces are related to the intense competition which the business faces from the competitors in retail industry. There is always the risk of fluctuations in the prices in the market and there is a high chance of losses in such a situation.

The business is engaged in the sale of variety of products which are for the retail business and the same are sold in online transactions. In addition to this, the business faces intense competition from the other retail giants like Amazon.

Risk Management Strategies

The risk management strategies which are followed by the business are shown below in details:

• Enterprise risk management system is established which can identify risk and deal with the same accordingly while at the same time reporting for the same. The system is known to identify all the risks such as operational, strategic, financial risks.
• A compliance program where important matters are to be reported directly to the Board of directors on a six-monthly basis or even sooner.
• Implementation of proper debtor collection policy which can help the business to collect the funds from the debtors and reduce any defaults in payments thus maintaining the financial risks of the business.
• Implementation of Budgeting system which can ensure that the business that the plan of the management is being followed and such will minimize the risks automatically.

Investment Options

The business as per the annual report considers equity capital which is used by the business in the capital structure of the business. However, the management can use more of debt-based capital in order to obtain a favorable mix in the capital structure of the business. The business can use retained earnings as well as a potential source. In addition to this, the company can undertake investments in foreign bonds.

Different Types of Taxes 

The different taxes which are applicable on a business in Australia are stated below:

1. Superannuation Taxes: These taxes are charged on a part of the retirement plan where the employer saves a part of the savings from the salary of the employee and also contributes a part into a fund which is then used for retirement purpose.
2. Corporate Taxes: Theses taxes refers to the taxes which is charged on the income or profits which are generated by the operations of the business. In Australia most of the businesses is charged at the rate of 30% on the profits of the business.
3. Goods and Service Taxes: The goods and service taxes refer indirect taxes which are charged at 10% in Australia and is on the supply of goods as well as services. Such taxes are usually charged on individuals who are registered under GST act.
4. Property Taxes: These taxes are charged on the property which may be of residential or industrial nature in case of company. These types of taxes normally fall under the purview of wealth taxes.
5. Payroll Taxes: These taxes are paid on the wages which are paid by the businesses to its employees. These taxes are collected by the state government where the business operates. The rate at which such taxes are charged keeps on changing as per the requirement of the State Government.
6. Land Tax: Such taxes are charged by the state government on the land acquisition or possession by business. The rate of taxes are pre decided by the government and the same can be updated as per the will of the government.

Deductions allowable to a business

As per the tax rulings which are provided by ATO, most of the expenses which are incurred by the businesses during the course of the business are allowed as deductions for the business. Some of these deductions that a business can claim as deduction are given below:

1. Business general expenses.
2. Deduction relating to GST input purchases.
3. Motor Vehicle expenses
4. Business Travel Expenses
5. Rent expenses
6. Wages and Salaries to employees
7. Interest paid
8. Bad Debts
9. Gratuity, pensions, superannuation.
10. Expenses for repairs and maintenance.
11. Computer provided to employee for which the employer bears the expenses.
12. Donations made to charitable institute.
13. Other operating expenses.
14. Fringe benefits provided by the employer.
15. Miscellaneous Business expenses

Rules for Claiming an Expenses as Deduction

As per the provisions which are provided by Australian Tax Office (ATO), the general rule is that if any company spends money for the purpose of earning revenues for the business then the business can claim the deduction immediately or even overtime. In order to claim an expense as deduction the following needs to be established:

• Expense must be incurred to earn an income for the business.
• The expense which is incurred by the business should not be in the nature of private or domestic
• The expense which is incurred by the business should not be an outgoing of capital or of capital nature which is related to a capital asset.

Deduction for Travel Expenses

As per the provisions which is provided by ATO, if an employee stays away from home for business travel for one or more than one night than proper documentations of the expenses need to be made in order to claim the deduction. In case the stay is for more than 6 nights, a proper diary is to be made which contains all expenses related to the business. In certain cases, fringe benefit taxes apply when employer incurs expenses for private tour of the employee.

Simplified Depreciation Rules

If a business chooses to follow simplified depreciation rules than the business needs to consider and follow the following:

• The management should use this method for computing depreciation for all depreciable asset except which are excluded.
• The business need to apply entire set of rules and not just one elements of the rules.
• The business needs to claim deduction for the asset which is used for business purpose ant for domestic purpose.

If the business does not follow the simplified depreciation rule than it must follow the general depreciation rules. This rule set the amount which can be claimed as deduction based on the useful life of the asset. The depreciation is calculated following prime cost method or diminishing value method.

The simplified rule applies to a small business which has a turnover less than $10 million from 1^st July 2016 or $ 2 million for any previous years. The deduction will be allowed at 15% or the first year and at 30% for the second year.

Tax Implications of Prepaid expenses 

Prepaid expenses which are incurred by small business are immediately deductible under 12 months rule if the following are satisfied:

• The eligible service period for the expenditure is 12 months or lesser.
• The period ends up on the last date of the income year following the year in which the expense was incurred.

In case the 2 months rule is not meet, then the business cannot claim deduction for the expenses which was incurred in a similar fashion. Small business can also use simplified tax system (STS) accounting method as well.

In order to access such a concession most of the business uses 12 months rule as it simplifies the entire process and is mostly used in businesses.

Time limit for Amending Tax Assessment

The time limit which is set for amending the tax assessments for individuals and small business is two years and for other categories of tax payers it is four years from the day when the notice of assessment is received from ATO.

Capital Gain Tax Concessions

The four scenarios where CGT concessions are allowed as per the provisions of ATO are:

• 15-year exemption: In such case, if the employer is above 55 years of age or permanently incapacitated and has an active business for more than 15 years, concessions will be provided.
• 50% active asset reduction: If an employer owns an active business asset than he will be liable to pay 50% of the capital gain when the asset is sold.
• Retirement Exemption: This applies to sale of active business asset with a lifetime limit of $ 500,000 and if the employer is above 55 years than the money received needs to be deposited in a superannuation fund or retirement fund for concession purpose.
• Rollover: If an asset is replaced by another asset than the CGT applicable can be defer for one year.

PAYG Installments

As per the provisions which are provided by ATO, a business can vary its PAYG installments. However, if the business ends up payment too low which is lesser than 85% of the amount which was actually needed to be paid than the business will be charged general interest for such a default.

GST Concessions

The concessions which are available for goods and service tax are given below:

• Accounting for GST on Cash Basis.
• Annual apportionment of GST input tax credit
• Payment of GST by installments.

Areas Causing issues in Taxation

The areas which can bring about issues in the overall tax computations in a business are treatment of depreciation funds which can be done under simplified system and general system. Then there is a case where stamp duty is to be paid for superannuation fund and also there is a situation with dividend access shares.

Financial Forecasting Techniques

The techniques which are used for financial forecasting are given below:

1. Delphi Method: In this method questionnaire are to be answered by experts for the first set and several other sets in order to narrow the scope of research and data.
2. Scenario Writing: In this method, different scenarios are considered along with their respective results This method uses brainstorming to develop ideas and forecast effectively.
3. Time series Analysis: This is a quantitative analysis which collects data from various sources and even past years in order to understand the trend followed by the same.

Financial Risks 

The financial risks which are faced by business are given below in point form:

1. Market Fluctuation risks
2. Credit Risks
3. Debt and borrowing risks
4. Liquidity risks
5. Risks associated with sources of finance
6. Foreign Exchange Fluctuation risks.

Managing Risks

The measure which can be taken for managing the common risks which the business faces are given below:

• Establishing risk management and identification programs for effective identification and management of risks.
• Creating an effective capital structure so as to reduce the risks related to the capital mix in a business.

Legal Rights of a Client

The legal rights of a client are given below in details:

1. The right to be kept reasonably informed for any situation concerning legal matters.
2. Right of privacy of communication with the attorney of the client
3. Right against any sort of discrimination on the basis of race, creed, caste, gender.
4. The client is entitled to sue the business in case of any default in the contract,
5. The client similarly has rights to claim from the client for any damage caused to the client’s business.

Formats Used for Depicting Financial Information 

The formats which are used business for depicting the financial information of the business are Financial Statements, Budgets, AGM presentations and Half yearly performance reports.

Significant Acts

Australian Privacy Principles: As per this principle all Australian and Norfolk Island Government Agencies, all private sector as well as public sector and NPO which has a turnover of $ 3 million must handle, use and manage personal information. The principles are covered under Privacy Act 1988.

Stamp Duty Act: Stamp Duty is a tax which is on documents which are imposed by state governments and the nature of the tax varies from one state to another state. Transactions like, leases and mortgage, hire purchase agreements, transfer of property requires stamp duty taxes.

Taxation Acts:  The taxation acts are introduced by the tax regulating authority in Australia which is the ATO and is also responsible for amendments and introductions of new taxation acts. An example can be given of the GST act introduced by the ATO.

Trades Practice Act:  This act was introduced for the purpose of ensure that effective competitive pressure exist in the market place. In addition to this, the act was responsible for preventing monopolistic practices which can affect the competition of the business.

Important Reports

Profit and Loss Statement: The profit and loss statement show the expenses which the business has incurred during the year and also the income which the business has earned during the year. In addition to this, the profit and loss statement depicts the financial performance of the business in terms of either profit or losses as per the performance.

Balance Sheet: The balance sheet depicts the financial position of the business at the end of a particular period. The balance sheet shows the total assets which are possessed by the business and also the total liabilities which the business accrues during the year. The assets and liabilities sides of the balance sheet matches to show accuracy and precision in preparation of financial statements.

Statement of Changes in Equity: This statement shows the changes which takes place in the equity related items of the business. This statement effectively shows the fluctuations in comparison with the estimates from previous year.

Cash Flow Statement Analysis

The cash flow statement forms part of the financial statements of the business and the statement is prepared for the purpose of showing the cash position of the business at the end of a period. Cash flow statement shows cash from operations, cash from investing activities and cash from financing activities. The cash flow statement shows the various changes that takes place in the cash position and also shows the liquidity of the business.

Budgeting in Business

The role of Budgeting in a business is very important nowadays. Budgets provides the business a means to plan for the future operations and effectively forecast the resources which are required by the business. In addition to this, budgets provide a means to the business to control the activities of the business and ensure that performance of the business is on the right tracks as per the plan and goals of the business.

Financial Markets

Financial products refer to the instruments which are used by business such as bond, securities and other sort of investments. Two important sources of financial information are stock market and banking institutions which offer securities as well.

Treasury’s Role 

Treasury is a department which is normally found in financial organizations and even in some businesses. The main purpose of treasury is to maintain the inflow and outflow of cash of the business. In addition to this, they are responsible for sanctioning any amount of cash for the use of business or as a loan in case of banking institute. In addition to this, treasury also maintains liquid assets and investments. 

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