• Internal Code :
  • Subject Code :
  • University :
  • Subject Name : Accounting and Finance

Determinants of The Lending Decision - Question 1

Cash budget of XYZ Pty Ltd for July to December

Cash Budget (Amounts in $)

Particulars

July

August

September

October

November

December

Opening balance

10000

4500

-4800

-32300

-79300

40900

Cash from sales in the same month

42000

60000

80000

100000

68000

40000

Cash from sales in month after sale

88000

115500

165000

220000

275000

187000

Cash from sales in second month after sale

37500

40000

52500

75000

100000

125000

Total cash from sales

167500

215500

297500

395000

443000

352000

Total cash available for use

177500

220000

292700

362700

363700

392900

Expenses: Labour and materials

           

Expenses in the same month

88200

126000

168000

210000

142800

84000

Expenses in the following month

44800

58800

84000

112000

140000

95200

Total labour and material expenses

133000

184800

252000

322000

282800

179200

             

Other budgeted expenses:

           

Selling, general and administration expenses

30000

30000

30000

30000

30000

30000

Rent

10000

10000

10000

10000

10000

10000

Taxation payments

   

33000

   

33000

Payment for motor vehicles

     

80000

   

Total cash disbursements

173000

224800

325000

442000

322800

252200

Ending cash balance

4500

-4800

-32300

-79300

40900

140700

Debt financing will help the firm in achieving required amount of funds for day to day functioning of the business processes and also help in avoiding cash shortfalls. By using debt financing, the ownership interest of the owner would not get diluted in the company. The company only has to repay the amount of principal at the time of maturity along with interest at the regular intervals of time (De Ressenfosse & Fischer, 2016). Also, the lender would not have any direct claim with regard to future profits of the business. The amount of interest can be effectively deducted from the tax return of the company and thus, lower down the actual cost of the loan acquired by the corporation. Moreover, it is considered that raising of funds with the help of debt is less complex as the corporation is not required to duly comply with federal and state securities laws and regulations (Dempsey, 2017). Therefore, it is highly recommended for XYZ Pty Ltd to acquire funds with the help of debt financing as this the company would be requiring to send mails on periodic basis to large number of investors and don’t have to seek their votes before undertaking any particular action.

Determinants of The Lending Decision - Question 2

  1. Variance analysis for ABC Pty Ltd.

Variance analysis (Amounts in $)

Particulars

Budgeted

Actual

Variance

Favourable or unfavourable

Variance (%)

Sales (WCDs)

800

760

-40

Unfavourable

-5%

Sales revenue

32000

30400

-1600

Unfavourable

-5%

           

Expenses:

         

Supplies

1600

2000

-400

Unfavourable

-25%

Labour

16000

16000

0

Favourable

0%

Variable utilities

1600

1520

80

Favourable

5%

Fixed overheads

9000

9000

0

Favourable

0%

Total expenses:

28200

28520

-320

Unfavourable

-1%

Profit/ (loss)

3800

1880

-1920

Unfavourable

-51%

To assist the Managing Director of ABC Pty Ltd in controlling the business, briefly interpret and provide possible explanations for the variances. This part will be a maximum of 200 words.

Variance analysis helps in evaluating the difference between actual and budgeted results through which overall performance of a company can be analysed for a particular reporting period (Marzlin & Ismail, 2019). For ABC Pty Ltd., the sales revenue has indicated an unfavourable variance of $1600 as there is less units of the product sold by the firm in comparison to budgeted units of 800. With regard to expenses, supplies have indicated an unfavourable variance of $400 as only amount of $1600 were budgeted with regard to supplies expense and in actual, $2000 has been incurred. Overall profits have indicated an unfavourable variance of $1920 as it has been projected that the company will earn a profit of $3800 and in actual, it earned profit of only $1880. The company is required to undertake suitable measures to boost up its sales in order to raise its revenue. For that, it can opt for effective advertising activities and formulate various discount offers and schemes in order to attract large number of customers. Moreover, it also requires to minimise its expenses in order to raise its profitability and overall performance.

Determinants of The Lending Decision - Question 3

A company requires funds to carry out its day to day operations in a smoothly manner. With regard to debt, the company would be liable to pay off interest expenses at regular intervals of time along with the repayment of principal amount at the time of maturity. Whereas, in case of equity, the corporations have to pay dividends to the shareholders out of the earned profits for their ownership stake in the company (Milewska, 2020). Being a start up company, LMN Pty Ltd. can opt for a mix of both debt financing and equity financing as this would help in achieving better control of its business operations. Debt is considered as the less risky source of finance and its payments are usually tax deductible. Cost of debt is generally lower than cost of equity. However, there are some disadvantages of debt financing. The company is liable to pay the interest expense irrespective of the amount of revenue and profits. On the other hand, there is no such obligation in case of equity financing. The firm is liable to pay dividends only in case of adequate amount of profits (Magnanelli & Izzo, 2017). However, in order to keep the shareholders intact to the company’s ownership, the company must generate consistent amount of profits to provide the shareholders with the expected returns. Therefore, it can be claimed that the adequate proportion of both debt and equity will help LMN Pty Ltd. in raising funds for the start-up business.

References for Venture Debt Financing

De Rassenfosse, G., & Fischer, T. (2016). Venture debt financing: Determinants of the lending decision. Strategic Entrepreneurship Journal10(3), 235-256.

Dempsey, M. J. (2017). Stock markets and corporate finance. World Scientific Publishing Company.

Magnanelli, B. S., & Izzo, M. F. (2017). Corporate social performance and cost of debt: the relationship. Social Responsibility Journal.

Marzlin Marzuki, N. A. R., & Ismail, J. (2019). Benefits and limitations of variance analysis in management accounting. ACCOUNTING BULLETIN, 15.

Milewska, A. (2020). Entities Performing Self-Government Public Tasks-Specificity of Acting and Funding. Zeszyty Naukowe SGGW w Warszawie. Polityki Europejskie, Finanse i Marketing, (23 (72)), 146-155.

Remember, at the center of any academic work, lies clarity and evidence. Should you need further assistance, do look up to our Accounting and Finance Assignment Help

Get It Done! Today

Applicable Time Zone is AEST [Sydney, NSW] (GMT+11)
Not Specific >5000
  • 1,212,718Orders

  • 4.9/5Rating

  • 5,063Experts

Highlights

  • 21 Step Quality Check
  • 2000+ Ph.D Experts
  • Live Expert Sessions
  • Dedicated App
  • Earn while you Learn with us
  • Confidentiality Agreement
  • Money Back Guarantee
  • Customer Feedback

Just Pay for your Assignment

  • Turnitin Report

    $10.00
  • Proofreading and Editing

    $9.00Per Page
  • Consultation with Expert

    $35.00Per Hour
  • Live Session 1-on-1

    $40.00Per 30 min.
  • Quality Check

    $25.00
  • Total

    Free
  • Let's Start

Get
500 Words Free
on your assignment today

Browse across 1 Million Assignment Samples for Free

Explore MASS
Order Now

Request Callback

My Assignment Services- Whatsapp Tap to ChatGet instant assignment help

Hire Certified Experts
Ask your Question
Need Assistance on your
existing assignment order?

We care

MyAssignmentServices uses cookies to deliver the best experience possible.
My Assignment Services acknowledges the academic integrity guidelines prescribed as per Australian Universities to ensure that the services, sample material, and study resources available on our website, in no way are utilised to commit academic misconduct of any type. All users of our services must adhere to and affirm acceptance of all conditions elucidated in our policy document on academic integrity.

Please accept and affirm the following to be able to continue exploring our website and services: I agree to NOT use any educational material, study resources, assignment samples, online mentoring services, available on the web domain www.myassignmentservices.com and all its subdomains to commit any academic misconduct. I have read and been made fully aware of the academic integrity policy of My Assignment Services and by clicking on the button below, I am in principle, wilfully and legally bound to adhere to guidelines of the academic integrity policy in whole and in part.
View Cookies policy | How we ensure Academic Integrity?