Setting Up Business and Financial Reporting - Essay Example

Setting Up Business and Financial Reporting Table of Contents Table of Contents 2 TASK 3 a) Listing necessary skills for the business 3 b) Income tax issues 4 1. c) Rationale of setting up Partnership 4 1. d) Finance for Expansion 5 TASK 2: 6 TASK 3: 7 a) Products or services David Jones sell 7 b) End day financial year of David Jones 8 c) Reason of publishing financial report more than current year 8 d) Significant accounting policy of the David Jones 8 e) Auditors of David Jones 9 Reference List 10 TASK 1: 1. a) Listing necessary skills for the business Mary has a long-term goal of starting a day-spa resort with her sister Martha. She planned to open resort in central coast area. After she has been offered a retirement package from her employer, they started to implement the business plan and came across a building situated on the central coast. Although the building is old, Mary and Martha decided that it was suitable for the new set up. They involved their husbands to execute the day-spa resort set up plan. In this partnership business, each and every member has some specific skills that are helpful in achieving success and growth in the market of central coast area of Australia (Business.gov.au, 2015c). Following table segments, the skill set of the partners along with the importance of these in the operational policies are stated. Partner Skills Importance Mary Flight attendant with Qantas This skill of Mary is helpful for developing service criteria and hospitality policies. She will be able to maintain proper assistant to visitors or service seekers. This skill will be helping the setup in designing services like massage, specialty treatments, health & wellness, mindfulness, skin care, body treatments, fitness and connect with spirit. Martha Marketing consultant This skill is important to promote spa center in locality and gain more customer attraction. It will help in enhancing sales of the firm. John Builder John’s building skill is helpful to renovate or reconstruct the old house building on the central coast and they can prepare it as the best spa setup (Business.gov.au, 2015b). James Plumber He can maintain proper system for potable (drinking) water, sewage and drainage in the Spa clinic which is very important for the relaxation. Therefore, it can be said that partners have necessary skills to run the new venture and they can use their skills to minimize payments to the outsourced parties. Overall running and maintenance cost of the firm will reduce gradually. 1. b) Income tax issues Income tax differs as per different forms of business structure like sole proprietorship, partnership and company. "Pass-through" tax entities like sole proprietorships, partnerships and limited liability companies are charged taxes as per the net profits they generated (Business.gov.au, 2015b). Australian industrial or business environment system requires sound understanding and selecting feasible business structures to gain success. Owners have to explore the guideline promoted by Australian Taxation Office. It will help in learning income tax rules for different type of business in Australia. Unincorporated business owners are responsible to pay income taxes on the basis of net profits earned by the business during any fiscal period. Reserves and provisions are not considered as a part of profits while calculating income tax. It creates issues for the partnership or sole proprietorship businesses (Business.gov.au, 2015c). On the other hand, partnership business are quite complex as partners many a time avoid reporting their shares on corporate profits, which reduces personal tax returns. Partners reports salaries, bonuses and dividends incomes as their taxable income. Therefore, it can be said that owners of partnership firms enjoys tax advantage. In this scenario, all the four partners Mary, Martha, John and James are responsible to pay tax individually and on-behalf of their new daily spa business. Australian Taxation Office can face the potential avoidance of reporting share from business (Business.gov.au, 2015b). 1. c) Rationale of setting up Partnership Partnership business concept is highly influential for developing the day-spa resort. First of all, it will help firm in utilizing skills of partners like Mary, Martha, John and James. Although the Partnership format is very easy and inexpensive to establish but Separate Tax File Number (TFN) need to be maintained for the set up that empowers the tax calculation rates. Australian Business Number (ABN) is an optional requirement that will increase trustworthiness of the firm (Business.gov.au, 2015a). In this format, businesses are not considered as separate entity that shares the liabilities and risks among all business partners. Mary, Martha, John and James are personally liable for any debt collected for the business. This concept increases confidence of the investors specially banking and financial institutions. Partners can manage the business operations very well with the help of shared control. Each of partners can control different process as per their skills and competency. Mary can control or supervise the hospitality and spa care process effectively as she has experience in attending several airline travelers. Similarly, Martha can control marketing process, John can design the building and James can ensure best swage system (Business.gov.au, 2015c). Partners are responsible for paying tax on their shares of net income and business is not charged with any tax. Australian Taxation Office seeks for yearly partnership tax return filing (Business.gov.au, 2015b). Henceforth, it can be said that partnership is quite influential for a small or medium sized spa centre. Partnership is helpful in avoiding complex tax rules and financial reporting criteria stated by Australian Taxation Office. 1. d) Finance for Expansion Day-spa resort development plan starts with purchase of building or locations. In order to purchase suitable building, Mary can use her fund retirement package obtained from Qantas. Mary and Martha selected a day-spa resort spot, an old building situated on the central coast area. They decided to buy the setup by partly self financing techniques. John and James become partners of the new set up. In order to collect capital they decided to sell their homes which are situated in the Canberra CBD. This initiative can be considered as key to purchasing building to start day-spa centre (Business.gov.au, 2015c). However, the business venture needs huge capital investment that can be obtained as additional capital from open market. They require constant funding for the next five years for achieving predetermined objectives. The day-spa centre will be developed on the basis of external finance. Banks or financial institutions get more assurance of loan refunds as partnership concept denotes that liability is shared among every partner. Mary, Martha, John and James have to repay loan amount after the succession of loan period. Partners can use mortgage loan instead of selling their home. Availability of this loan is higher than normal commercial loan and financial institutions face low risk (Business.gov.au, 2015b). Recurring financing requirement can be fulfilled by the help of banking aids. Day-spa can get potential fund if they are able to maintain repayment commitments. Trustworthiness is the key to obtain continuous support from any financial or banking institutions (Business.gov.au, 2015a). Partners of the day-spa centre are having sound financial background and the bank will have more trust on the partners. Therefore, financial institutions or banks will be happy to provide loans to spa-business as they can recollect the loan amount from the partners. TASK 2: After the financial crisis, firms and their stakeholders are highly concerned for evaluating financial statements and accounting reports. It has been observed that organizational decision maker uses accounting information highly for developing the strategies. Historical records are contrasted in terms of forecasting future events outcomes. However, Eun, Resnick and Sabherwal (2012) argued that historical data is quite useless for external decision makers. Financial reports are highly used by investment analysts in order to evaluate the entity and assess potential risks and returns. Historical information reduces accuracy of decision making of external investors from the open market. Investment return and risk potential forecast to the clients becomes inaccurate (Franz, 2010). Competitors of any firms are accessing financial information and statement for evaluating strategic outcomes. Statistics like sales and profits are evaluated to create a benchmark on the competitor’s performance and increase the level of competency (Melvin and Norrbin, 2013). Paramasivan and Subramanian (2009) observed that financial reports are aiding company managers and owners rapidly in making organizational decisions. Managers use accounting reports to make most feasible decision and plan for achieving growth and sustainability of business. On the other hand, owners or investors contrasts risk along with potential returns. Employees are also crucial part of organizations and their representative uses financial information for gaining insight on the stability and profitability of firms. They also measures past remuneration structure, retirement benefits provided and employment opportunities offered by the organization (Noiret, 2008). External stakeholders like financial institutions or banks uses latest financial information for checking the ability of firms to meet debt obligations, interest payments and repayment capacity of borrowed capital. Suppliers and trade creditors seeks for financial information for obtaining assurance on repayments of trade credits within due date. Trade creditors prefer business entities which repays the debts within a short period of time (Zdrazil, Blomberg and Ecker, 2012). Customers, being one of the major external decision makers, they are interested for the financial information in terms of the gaining information on the business process. It will increase the long-term involvements with the firm (Ogren, 2009). Therefore, old financial data will make the decision making system rigid and customers will get lower benefits on purchasing any product or service. Local and international Government appoints some agency partners for investigating financial information and reports for implementing regulations on activities of business houses. They assess pricing policies of firms to check requirements of financial support and tax liability (Zdrazil, Blomberg and Ecker, 2012). Melvin and Norrbin (2013) opined that the public or society members are seeking for statistics on social investments. Recently, the firms are responsible to increase social support. Effective investment will increase satisfaction among the society members. It will gradually increase business potentials in the globalised environment. Old financial data proved to be scarce for the external decision makers. Scope of forecasting gradually reduces as financial data becomes outdated or invalid due absurd recording. However, external stakeholder’s decision making is very important for the organization as it lead to growth or expansion in future (Eun, Resnick and Sabherwal, 2012). TASK 3: a) Products or services David Jones sell David Jones is the oldest departmental store of Australia which was established during the year 1838. It is operating through more than 39 stores that are spread all over the Australian states. They are offering vast product ranges cosmetics, fashion, home wares, furniture, electrical, food and some post sales and financial services (David Jones, 2015b). It has been observed that they are offering shoes, bags, accessories, and beauty products for both men and women customers. This strategy helps the firm to attract more customers towards their product ranges. Finally, vast product range helps the firm in meeting competitive challenge from Harvey Norman Holdings Ltd and Myer Holdings Limited (David Jones, 2015a). b) End day financial year of David Jones Merger with the Woolworths Holdings Limited changed the financial year of David Jones. After the fiscal year 2013-2014, the organization closed their accounts on 28th of June 2015. This rescheduling helped the David Jones in maintaining unique accounting system with the South African group (David Jones, 2015b). c) Reason of publishing financial report more than current year David Jones publishes minimum two years of financial records. Along with current year’s data, they provide previous years data in order to help the investors or other stakeholders to calculate the deviation between two fiscal periods (David Jones, 2015b). d) Significant accounting policy of the David Jones David Jones is owned by South African company Woolworths Holdings Limited and is planning to operate internationally by entering into the New Zealand market thus, they adopted innovative accounting policy. In order to meet exchange rate related challenges, derivative financial instruments policy is implemented by the organization (David Jones, 2015b). Fair value hedge and cash flow hedge are the two factors of the derivative systems. Fair value hedge is one of the most significant accounting policies adopted by the firm. Finance costs of the income statement represent deviation in fair value of hedging derivatives. Change in fair value of hedged item results in increased risk for David Jones. The finance costs hikes immediately due to the change in foreign currency value (David Jones, 2015b). Fair value hedges calculate cost of items in amortized cost formats. Amortized rate is adjusted with the fluctuated rate of interest on the marketable securities. Amortization of the noncurrent and intangible assets is quite crucial for increasing welfare of stakeholders. International auditors agreed that such policy of David Jones helped the firm to attract market stakeholders. Henceforth, the firm will be able to increase potentials of collecting market investment (David Jones, 2015a). e) Auditors of David Jones Financial statements of the firm are audited by independent auditors to make it more trustworthy and flawless for stakeholders. It has been observed that during the last fiscal year, Ernst & Young Company audited the financial report. Audit was done following rules of Corporations Act 2001 (David Jones, 2015). Reference List Business.gov.au, 2015a. Advice and support. [online] Available at: [Accessed 11 September 2015]. Business.gov.au, 2015b. Business structures and types | business.gov.au. [online] Available at: [Accessed 11 September 2015]. Business.gov.au, 2015c. Partnership | business.gov.au. [online] Available at: [Accessed 11 September 2015]. David Jones, 2015a. Investor relations - David Jones. [online] Available at: http://www.davidjones.com.au/For-Investors> [Accessed 11 September 2015]. David Jones, 2015b. Presentations and Reports - David Jones. [online] Available at: [Accessed 11 Sep. 2015]. Eun, C., Resnick, B. and Sabherwal, S., 2012. International finance. New York: McGraw-Hill Irwin. Franz, N., 2010. Biological taxonomy and ontology development: scope and limitations. Biodiv. Inf., 7(1), pp. 297-314. Melvin, M. and Norrbin, S., 2013. International money and finance. Boston: Elsevier Press. Noiret, S., 2008. Publications on financial history 2006. Financial History Review, 15(2), p.203. Ogren, A., 2009. Financial revolution and economic modernisation in Sweden. Financial History Review, 16(1), p.47. Paramasivan, C. and Subramanian, T., 2009. Financial management. New Delhi: New Age International (P) Ltd., Publishers. Zdrazil, B., Blomberg, N. and Ecker, G., 2012. Taking Open Innovation to the Molecular Level - Strengths and Limitations. Mol. Inf., 31(8), pp.528-535 Read More