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Unit 8 Finance In Hospitality Sector, Level 5, UKCBC

3842Downloads1 I Published: 01 Apr ,2020

Introduction

Every business requires proper maintenance of accounts as well finance of the company there are various methods that are being used by the company for the purpose of managing finance. Hospitality sector is one of the fastest growing sectors and the need of managing finance in this sector is growing quite rapidly (Jones, Hillier and Comfort, 2016). Some of the methods of managing finances would include budgetary control, cash control, etc. Proper maintenance of books of accounts is also important for making sure that business is managed efficiently. Belgravia Hotels is well known company in the in Hospitality industry and is growing rapidly due to demand from tourists and customers in this regard. It is necessary for the company to manage its books of accounts efficiently so that business can be taken ahead to reach to its full potential.

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Task 1

1.1Sources of funding to new and existing business

There are large numbers of sources through which a firm can raise funds for the purpose of raising its business, these are described as follows:

New business

Personal investment: it is basically investment, which are being made by the owner himself in the company the risk involved in this kind of capital is very low.

Advantages

  • It is a good sign if owner puts his own capital in the business, it gives a good message to bankers and venture capital list that the owner himself are ready to put his money at risk and believe in his idea.

The owner will put his best possible efforts for growing it’s business as his own capital is at risk (Martínez, Pérez and Rodríguez del Bosque, 2013).

Disadvantages

  • One of the disadvantage can be that there might be a lack of professional advice for investment.

Venture Capital: It is the kind of private which is provided to small businessIn order to earn huge profit but at the same time involves a lot of risk. Usually a venture capital list would invest in small and medium business and will hold necessary percentage of share in the firm but the ultimate owner remains the entrepreneur (McManus, 2013).

Advantages

  • Guess the entrepreneur and initially start to take his business forward and build it in a strong manner. Necessary resources can be arranged with the capital which is infused by the venture capital list.
  • It comes with no cost of capital as there is no interest that has to be paid on this capital

Disadvantage.

The control over company is lost by the entrepreneur as most of the stake would belong to Venture capitalist (Campo, Díaz and Yagüe, 2014).

Already Established Business

Bank Loan: It is one of the most important and easy way of raising funds for small and medium size business. They just have to apply to any commercial bank for raising funds in the bank will give loans on the basis of eligibility of the consent business.

Advantages

  • It is an easy way of raising funds and there is minimum paperwork involved.
  • The company do not have to share profits with those for provided funds and just have to pay a fixed amount of interest.

Disadvantages

  • The business might have to pay interest which will be a liability for the company and will reduce profits.

Debenture: It is issued by the company to general public to raise funds. It is the liability of the company and the company will have to pay a particular date of interest to the debenture holders, irrespective of the fact whether company is generating profits or not (Singh., 2016 ).

Advantages

  • The company will not have to share profits with dementia holders. Will give necessary funds for expansion of Management.
  • Control is not delegate to people for giving funds.

Retained Earnings: It is basically accumulated profits that are earned by company over period of time. It does not involve any cost and it is your profits that earned by company through its operations.

Advantages

  • It can help in providing stability to business.

Disadvantages

  • One of the biggest disadvantage is that it may lead to improper utilisation of funds.

1.2 Contribution of different methods for the purpose of generating income

There are radius methods which could help a business to earn profits and generating income from its operations in an affective way, some of these methods are discussed below:

Sales Promotion: under this, the company try to promote its products through various measures of sales like door-to-door selling, television and newspaper advertising etc.

Sub Letting: it is yet another method of generating income, under this the company will give its property or assets to another user for the purpose of using it and in return the company would be getting a rent. This can complement the income sources of company and may help it in generating more profits.

Sponsorship: Under this, company or a business will provide support to any activity that would be taking place within the area or in the city and by doing this it will be able to market the name of company or its products. The support can be monetary or non-monetary.

M1: Effective approaches to determine sources of finance

From all the above mentioned various sources of finance available to hospitality sectors are discussed. Out of which there are some of them are more effective or beneficial for them in near future. Retain earning can assist them to make expansion for increasing size of the business. Loan is another great option of raising funds and can available to business in much easily. They are beneficial for them to plan their operations in effective manner.

D1: Range of various methods of generating income

It has been seen that there are wide range of modes from which income can be generated for conducting an effective business plan for an organisation. Commission is said to be crucial aspects which would be retain from outside parties or suppliers to manage and operate internal and external department of an organisation. With the help of government grant company can easily be able to manage and regulate their operations in more effective ways in near future time.

Task 2

2.1 Cost

  • Elements of Cost

Cost: It is an amount which is spent by the company in the process of producing goods and services. This can take form of raw material, labour, overheads etc.

Some of the main elements of cost discussed as follows:

Material: it refers to the material, which are being used for the purpose of producing goods. It can be of two types direct material and indirect material. Direct material are those which can be ascertained by looking at the product itself and indirect material are those which are ancillary in production of a product cannot be ascertained by looking at product (Ndoda, 2013).

  • Labour: these are the manpower of the company it involves employees.workers, management etc. they are the one who are responsible for taking the Company forward. The amount paid to labours by the company are recorded as wages in the books.
  • Overhead: it refers to any extra expenditure that might have acquired by the company on production of a product or service except raw material and labour cost. It can be further sub-classified into various cost like:

-Production Expenses

-Selling and overheads expenses

-Administrative Expenses

-Distribution Expenses

(b) Gross profit percentage as well as selling Price

Gross Profit percentages: It is the ratio which describes the relationship of a company’s gross profit as percentage of sales. A gross profit tells about company’s profit from operations. It helps company in making comparison of profits of two organisations (Guerrier, 2013).

Gross Profit Percentage = Gross Profit/ Total sales*100

Selling price+COGS+MARKUP

In order to arrive at net profit which are being earned by the company, it will have to deduct all its operational expenses from gross profit. The net profit is the ultimate profit that goes to the reserve of company.

2.2 Methods of controlling stock and cash

Cash Control Method

  • Implementation of efficient cash handling strategies: Under this, a organisation would frame necessary policies and strategies which would help in maintenance of adequate cash level within the organisation.
  • Accountability Form: It means preparation of cash accounting forms which will further improves companies profits and will enable it to overcome from looses.
  • Setting up of Cash Flow Target: It involves forecasting the various requirements of cash in an organisation for effective control in future. Strategies are framed keeping in mind the cash requirement of the company.

Stock Controlling Methods

  • Just in Time: It is a method to manage inventory, under this the order for replenishment of stock is made just before its use and hence it results in saving of various costs to company.
  • Inventory Budget: It basically means preparation of budget in advance about various elements of cost like materials, operational costs, other expenses, logistics etc.
  • Perpetual Inventory System: It assist company in keeping an eye on quantity as well as value of Stock.

M2: Relevant theories and techniques of setting prices

A business can uses a wide range of methods of pricing whcih are used by an organisation during selling of products and services. It is done to maximise profitability of each transactions done by an organisation. Conventinal pricing techniques that emphasised that setting separate equal contribution margines to various earning segments serve by hotel industries.

D2: Critical evaluation to have planned, manage and organise a number of activities

As per the mentioned various activities that are related with stock controlling is consider as primary mode of reliable functioning of daily transactions and working capital management in an organisation. It is done to avoid unnecessary inventory purchases that are done by “Belgravia Hotels”.

Task 3

3.1 Source and Structure of Trial Balance

Trial Balance: It can be regarded as a document which provides various information about the income as well as expenses which has been incurred by an organisation during a particular period of time. The balances are reflected in terms of debit column and credit columns. Most of the information in trial balance is taken from ledger accounts (Schneider and dos Santos, 2013).

Particulars

Debit

Credit

Cash

50,000

 

Bank

20,000

 

Land and Building

15,000

 

Machinery

10,000

 

Bank Loan

 

50,000

Debenture Holders

 

30,000

Bank Overdraft

 

15,000

TOTAL

95,000

95,000

3.2: Evaluation of budget account

In case of any financial institution, trail balance is an essential object which is being prepared by an accountant from there financial transactions that are done during an accounting period of time. This can reduce lot of impacts in recording transaction for the formulation of final statements, positing them into their respective areas in order to get more reliable results in coming time.

Adjustment associated with cost of machinery:

Machinery account DR............

To Ramsay machine tools Account CR.........

Adjustment detail:

  • In case of machine buy on credit from concern parties.
  • It will be included in balance sheet and deducted from machine tools.

Machinery A/c

Particular

Amount DR

Particular

Amount Cr

To Balance B/d

58000

By Balance C/d

78000

To XYZ machine tool

20000

   
 

78000

 

78000

 

XYZ machine tool A/c

Particular

Amount

Particular

Amount

To Balance C/d

20000

By Machinery C/d

20000

 

20000

 

20000

 

In case of wage account:

The amount must be recorded on teh debit balance. Because of this, there total value goes on increasing (Altinay, Paraskevas and Jang, 2015). There effects are seen over some transactions. Such as:

  • Negative balance from salary accounting is being indicating on debt side of profit and loss statements.
  • Positive value related to wages is being indicating on debit side of trading accounting.

Posting into journals

Salary A/c

Particular

Amount

Particular

Amount

To Balance D/d

15300

By wages

43000

   

By Balance c/d

11000

Total

15300

Total

15300

 

Wages A/c

Particular

Amount

Particular

Amount

To Balance B/d

18000

By Balance C/d

51000

To salary a/c

33000

   

Total

51000

Total

51000

Salary account: It has been obsered that debit account balance which has be credited with total amount of 33000. Its toal balance should be reduce to 33000. The entries will be posted in profit and loss account in appropriate manner. Thus, total balance of salary is being used to record in incomes statements of the company.

3.3 Process and Purpose of Budgetary Control

A control method whereby genuine outcomes are contrasted and spending plans. Any distinctions (changes) are made the obligation of key people who can either practice control activity or modify the first spending plans. Budgetary control and duty focuses; these empower directors to screen hierarchical capacities. A good budgetary control would help in preparing efficient budget as well maintain higher level of profits through achieving good productivity. It can help in various department of the company like purchase, sales, marketing, administration etc.

3.4: Evaluating budget variances

In every business organisation, it has been found that the primary objective which is being helpful for the purpose of formulating final statements of Belgravia Hotels. It is necessary for the company to make analysis of all material and labour variances that are present in an organization (Hoque, 2013). The budget cost use to allows managers to set prices and total estimation of profits. In accordance to wide reason, cost and total income that can be categories in higher or medium-sized at the time of calculation. Budget is an estimation of future costs and expenses a company is going to invest. This can assist an organization to make control of their resources in effective manner. Variance analysis is an essential part for the company to make comparison of outcomes collected from past and present time results. The data would be taken into consider for increase overall aims and objectives for the company. This will be taken as to analyse adverse and favourable result collated from total cost of production.

Budget variance

Particular

Standards

Actual

Variances

Unit sold

50000

20000

30000

Material

17,000

 

20500

-3500

Direct labour

21500

22375

-875

 

Particular

Material(£)

Labour (£)

Price / Variance Efficiency

-5500

3750

Variance

-3000

-5425

Total Variance

2500

-1675

From the above inforamtion which is made on assumption basis. The collected data is being analyse on the basis of total 50000 standard units. The total variance is being determine by using direct material and labour variances that are being dicussed in the above table. The resulst are showing adverse impacts on the material and labour costs. There are various types of adjustment entries that are needed to be taken into account in accordance with the preparation of trail balance.

M3: Structure and approaches to assess the trail balance

Sources of preparation trail balances is related with major three categories such as general ledger, sales and purchase ledger book. Structure of trail balances is concern with all specific categories that are consists of current assets and contra assets and current liability as well as long term liability. Such as:

Trail balance as on 31st April, 2018

Particular

Debit

Credit

Cash at bank

60150

 

Account receivable

2500

 

Building

199400

 

Office supplies

450

 

Common stock

 

250000

Rent expenses

 

12500

Total

262500

262500

 

Task 4

4.1: Calculation of different ratios of Belgravia Hotels

In respect to analyse total growth and performance of any hospital industry, it is necessary to calculate some specific ratios that can assist in evaluating current position of the company. The most effective tools that are being use by account managers are the ratios analysis. It can guide manager to make reliable and accurate decision in coming times. There are various financial ratios that are being chosen required to be use to determine total performance of an organisation. Some of them are mentioned underneath:

Particulars

Formulas

Amount (£)

Profitability Ratio

   

Gross profit margin

Gross profit/Sales

39.86

Net profit margin

Net Profit / Net sales*100

15.55

     

CURRENT RATIO

Current assets/current liabilities

3.51

Current assets

 

25550.06

Current liabilities

 

5770

Current ratios

 

4.4280869665

     

Stock Turnover

Net sales – Gross / stock

39.38

DEBTORS COLLECTION PERIOD

Debtor/sales*365

27.45

debtors

 

11820

     

Credit Collection period

Creditors/sales*365

12.18

After Balance sheet

   

Credit Collection period

 

13.4

     

Acid Test Ratio

 

3.09

stock

 

2400

Liquid assets

Current assets- inventory

17474

From the above computed ratios, it has been determine that all data would be taken on an assumption basis (Xiao, O'Neill, and Mattila, 2012). The profitability aspects of the hotel company is showing more valuable net profit margin with total of 15%. While in case of liquidity ratios, Belgravia Hotels is in effective position of meet out their short-term obligation that are making impacts on the liquidity aspects of the company. The hospitality business is increase at faster rate and in respect to this current and present trends are needed to be analyse in more effective manner in order to get more reliable outcomes in near future times. The overall results are in the favor of the company to make future plan for increase their business in various nations. The services are more reliable and effective that is being deliver to the guest those are visiting to that particular hotel.

4.2: Recommendation about future management strategies

From the above financial ratios, it has been calculated that an organisation can make use of various financial data about the company in accordance with analysing current year position. This particular plan is more useful in evaluating overall stability and position that can assist investors to make their valuable decisions regarding increase of overall profitability during the period of time. In accordance with hospitality company that can gain competitive advantages through implementing effective resources in more accurately and reliable manner. The liquidity position of the company can be determined by using valuable results through computing current ratios and liquid ratios. This particular ratio is more dependable for the company in respect to analyse short term liquidity position of the company to meet debt obligation during the period of time. The debtor collection period is also in favourable ways for the Belgravia Hotels. The suggestion is to make use of capital in order to increase goodwill and expansion of business in various parts of the nations (Sahida, and et. al., 2011). It has been seen that the growth rate of Belgravia Hotels over the past few years is being more satisfactory. They are able to sale grew up with 24% in the 2015. They need to make use of capital for the purpose of increasing overall performance of the hotel.

Task 5

5.1: Classification of various types of costs

Cost is an essential aspect for an organisation, whether related with retail of hospitality sector. These are said to be value of amount that is given by the company in order to attain specific aims and objectives in future time. It is associated with production process both directly or indirectly. It is utmost important part for an organisation in that can make huge impacts on productivity or profitability position of the company. There are various types of cost that would be classified into various segments. Some of them are discuss underneath:

Fixed cost: It is related with all necessary costs which remain unchanged at the time of production of products and services or not operation business during an accounting period. These are expenditure that has to be make payment by a company, independent in case of any business activity. Some examples are rent, insurance and so on.

Variable cost: It refers as those costs which can be changed with the production of one additional products and services during the time. This seems to be corporate expenses that alter in proportion with manufacturing of goods. It is mostly depend on total volume of the company. Some of them are: Fright out, production supplies and commissions.

Semi- Overhead: It is known as combination of both fixed and variable costs are taken into consideration under this cost. These are applicable in hotel industries in accordance with provide accommodation facilities to the company. It is the rate at which guest can be charged.

5.2: Contribution per unit

Total number of masses: 100

Normal charges= £25

Sales: 100*25=2500

Variable cost= 100*£15.50= 1550

Total contribution: Sales – Variable cost

: 2500-1550=950

Margin of safety = 950-380/2500*100

= 22.8%

In case of increase in 110 people with increasing charges of ticket prices.

Sales= 110*22= 2420

Variable cost: 1550

Total contribution: Sales- Variable cost

: 2420-1550=870

Margin of safety: 870-380/2420=12.27%

: 20.24%

5.3: Justification of short term management decision

It has been analyse that company is in the break even point which is having amount of sales or earning that it needs to incur maximum return in respect to equal profit and loss. In respect to determine company overall ability to generate total profit they need to make proper analysis of break even point (Bar-Tal, 2012). It used to provide common powerful quantitative techniques for managers. It is one of the simplest forms, BEV evaluation guide insight about hospitality sector, whether or not earning from a products or services has the capability to cover the relevant cost of manufacturing products. Generally, the case study is being formulate and presented in linear ways so that mangers can be easily be able to analyse current aspects regarding the company. All kind of risks that are exist in an organisation in accordance with total earning and sales can be determine in more effective manner.

D3: Determining issues associated with performance by BEP analysis

Break even analysis is essential process which is done to determine total number of sale and revenue a company is earning in an accounting period. It is widely used to analyse the number of units a business required to sell order to deal with unnecessary issues. It is done to analyse total selling prices, variable and fixed costs incurred during an organisation.

BEP (in Units): Fixed costs / Contribution per units

Fixed costs= 550

= 550/(25-15.5) = 57.89 units.

Conclusion

From the above project report, it has been concluded that finance is an essential life of any business enterprises. Without having appropriate sources of capital they are not being able to plan their business resources in effective manner. There are various sources of finance available to an organisation in order to regulate their operations in more effective manner. For this purpose, managers’ uses to implement new and innovative tools and techniques those are helpful in attain future aims and objectives. Apart from this, wide number of advantages is collected by the organisation from sales, revenues and total earnings during the time. Financial analysis is also necessary to determine in respect to attain more valuable information about the company. By this future growth and financial stability can be attain in more quick time. Assignment Writers of IAH Australia are always there to help you to score best grades.

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References

  • Jones, P., Hillier, D. and Comfort, D., 2016. Sustainability in the hospitality industry: Some personal reflections on corporate challenges and research agendas. International Journal of Contemporary Hospitality Management. 28(1). pp.36-67.
  • Martínez, P., Pérez, A. and Rodríguez del Bosque, I., 2013. Measuring corporate social responsibility in tourism: Development and validation of an efficient measurement scale in the hospitality industry. Journal of Travel & Tourism Marketing. 30(4). pp.365-385.
  • McManus, L., 2013. Customer accounting and marketing performance measures in the hotel industry: Evidence from Australia. International Journal of Hospitality Management. 33, pp.140-152.
  • Campo, S., M. Díaz, A. and J. Yagüe, M., 2014. Hotel innovation and performance in times of crisis. International Journal of Contemporary Hospitality Management. 26(8). pp.1292-1311.
  • Singh, R., 2016. The state of Indian tourism and hospitality research: A review and analysis of journal publications. Tourism management perspectives. 17. pp.90-99.
  • Ndoda, G. R., 2013. A Critical Analysis of the “fit” Between Strategy and Structure,(Framework) as a Determinant of Economic Performance in the Tourism and Hospitality Industry in Zimbabwe.
  • Guerrier, Y., 2013. hospitality management. Key Concepts in Hospitality Management.
  • Schneider, M. and dos Santos, M.M.C., 2013. Seeking to build a theoretical reference frame to analyze the hospitality in pilgrimages. Rosa dos Ventos. 5(4). pp.577-591.
  • Altinay, L., Paraskevas, A and Jang, S. S., 2015. Planning research in hospitality and tourism. Routledge.
  • Hoque, K., 2013. Human resource management in the hotel industry: Strategy, innovation and performance. Routledge.
  • Xiao, Q., O'Neill, J. W. and Mattila, A. S., 2012. The role of hotel owners: the influence of corporate strategies on hotel performance. International Journal of Contemporary Hospitality Management. 24(1). pp.122-139.
  • Sahida, W and et. al., 2011. The implementation of shariah compliance concept hotel: De Palma Hotel Ampang, Malaysia. In 2nd International Conference on Humanities, Historical and Social Sciences (Vol. 17, pp. 138-142).
  • Bar-Tal, D., 2012. Group beliefs: A conception for analyzing group structure, processes, and behavior. Springer Science & Business Media.
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