Agribusiness - annotated exemplar level 2 91868

Demonstrate understanding of cash flow forecasting for a business (2.10)

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This annotated exemplar is intended for teacher use only. The student work shown does not always represent a complete sample of what is required. Selected extracts are used, focused on the grade boundaries, in order to assist assessors to make judgements at the national standard.

Low Excellence

Commentary
Student work extract

Student 1 (PDF, 110KB)

For Excellence, the student needs to demonstrate comprehensive understanding of cash flow forecasting for a business.

This involves justifying the response(s) of the business to the variation in the external factor. 

The student used spreadsheet software to produce a cash flow forecast, showed the effect of the land use fee variation and showed their recommended responses to the variation on the cash flow forecast (not shown here).

The student has explained the impact of the variation of the $15,000 land use fee on the chicken farm (1). Three possible responses the business could take to address a deficit caused by the unexpected fee are also explained (2).

The student has explained advantages and disadvantages for all three responses, including using debt finance which was not in the end recommended. Justification has been provided for increasing capital (3) and reducing advertising (4).

The student has demonstrated comprehensive understanding of cash flow forecasting by considering restraints such as contractual arrangements and employment law (5). Accurate business language such as deficit, negative bank balance and equity, has been used.

For a more secure Excellence, the student could indicate that the saving of $600 for advertising would be achieved over two months (6). The student could also use a bank website to provide comparable interest rates for overdrafts and mortgages (7).

High Merit

Commentary
Student work extract

Student 2 (PDF, 593KB)

For Merit, the student needs to demonstrate in-depth understanding of cash flow forecasting for a business.

This involves showing the response(s) of the business to the external factor on the cash flow forecast and explaining the possible response(s) of the business to the variation in the external factor.

The student showed the response of the business to the installation and monitoring camera fee on the cash flow forecast using spreadsheet software. The student has explained the increase in the deficit for September when the fee is added to the forecast. Other increases in expenses and wages from July have also been explained (1).

The student showed and explained three possible responses the business could make to address the increased deficit due to the $50,000 fee in September. These were a reduction in personal drawings, a decrease in advertising, and an increase in the bank loan (2).

Some advantages of these three responses have been identified and disadvantages have been explained (3).

The student has explained why reducing personal drawings may not be a viable response.  A brief explanation of why increasing the loan and reducing advertising are the best responses is provided (4).

To reach Excellence, comprehensive understanding of forecasting needs to be demonstrated. This involves providing further depth in the explanations of the advantages and disadvantages of each response (5). Further detail could also be provided around why increasing the loan and reducing advertising represent the business’s most appropriate responses to the monitoring fee (6).

Low Merit

Commentary
Student work extract

Student 3 (PDF, 532KB)

For Merit, the student needs to demonstrate in-depth understanding of cash flow forecasting for a business.

This involves showing the response(s) of the business to the external factor on the cash flow forecast and explaining the possible response(s) of the business to the variation in the external factor.

The student showed the response of the business to the unexpected fee on the cash flow forecast using spreadsheet software. The increase in the deficit for September when the fee is added to the forecast has been explained (1).

The student has shown and explained four possible responses the business could take to address the $50,000 fee in September. These are a reduction in personal drawings, a reduction in advertising, extending the overdraft and injecting $35,000 capital (2).

Advantages (3) and disadvantages (4) of these four responses have been explained.

The student concluded that the combined response is most appropriate for the business by briefly explaining why reducing crayfish expenses and wages is not appropriate (5).

For a more secure Merit, the student could recognise some feasibility issues around the owner injecting capital and reducing drawings. This can be explained as additional disadvantages.

For example, the owner may not have $35,000 in personal savings or liquid assets.  A term deposit will take 30 days’ notice to break and access. Also, a $3,500 drop in income for two months is large. The owner may not be meet their personal expenses and this could damage their personal credit rating.

High Achieved

Commentary
Student work extract

Student 4 (PDF, 566KB)

For Achieved, the student needs to demonstrate understanding of cash flow forecasting for a business.

This involves using software to show receipts and payments in a cash flow forecast, showing the effect of variation of an external factor on the cash flow forecast, and explaining the effect of variation of an external factor on the business.

The student has used spreadsheet software to provide a cash flow forecast and has shown the effect of the camera installation and monitoring fee on the spreadsheet (1).

The student has explained the effect of the variation using the figures from the first cash flow spreadsheet before the responses were added (2).

The student entered four responses to the unexpected fee on the cash flow forecast. These were an extension to the overdraft, an injection of $20,000 capital, reduction in drawings and advertising, and a four-month loan repayment holiday (3).

Some of the positive and negatives of three adjustments or responses, injecting capital, reducing drawings and reducing advertising, have been explained (4). 

To reach Merit, the student could provide more depth to their explanations of the responses, and recognise a feasibility issue around applying for a four-month loan repayment holiday when the loan was only drawn down in July. The need to apply to extend the overdraft also needs to be explained.

Low Achieved

Commentary
Student work extract

Student 5 (PDF, 668KB)

For Achieved, the student needs to demonstrate understanding of cash flow forecasting for a business.

This involves using software to show receipts and payments in a cash flow forecast, showing the effect of variation of an external factor on the cash flow forecast, and explaining the effect of variation of an external factor on the business.

The student has used spreadsheet software to provide a cash flow forecast and has shown the effect of the camera installation and monitoring fee on the spreadsheet. (1).

The student’s responses to the unexpected fee were extending the overdraft, injecting $15,000 capital, reducing drawings and advertising, and changing the conditions of the loan to reduce repayments. As the unexpected invoice arrived at the end of July, the changes to drawings, advertising and loan repayment for May to July are premature (2).

Some of the positive and negatives of four responses, injecting capital, reducing drawings and advertising, and changing the loan conditions have been briefly explained (3). 

For a more secure Achieved, the student could enter the responses to the camera installation and monitoring fee in the correct months to demonstrate a more accurate understanding of cash flow forecasting.

The student also needs to explain the need to apply for an extension to the overdraft to ensure payments are not dishonoured by the bank.

High Not Achieved

Commentary
Student work extract

Student 6 (PDF, 596KB)

For Achieved, the student needs to demonstrate understanding of cash flow forecasting for a business.

This involves using software to show receipts and payments in a cash flow forecast, showing the effect of variation of an external factor on the cash flow forecast, and explaining the effect of variation of an external factor on the business.

The student has used spreadsheet software to produce a cash flow forecast and has shown the effect of the monitoring fee on the forecast (1).

The student responded to the monitoring fee on the cash flow forecast by reducing advertising. As the unexpected invoice arrived at the end of July, the reduction in advertising for May to July is premature (2).

While some of the positive and negatives of reducing advertising have been briefly explained (3), this response alone is insufficient to cover the deficit caused by the monitoring fee. It is necessary for the student to make other adjustments to the forecast. They could consider increasing debt, decreasing another expense or having the owner inject further capital.  

To reach Achieved, the student could include more detail in their explanation of the effects of the variations on the forecast. The increase in the deficit for September, due to payment of the fee needs to be explained using correct accounting language. The negative bank balance or deficit is not an overdraft unless this facility has been pre-arranged on the account (4).

The response to the unexpected invoice needs to be entered into the correct months to demonstrate an accurate understanding of cash flow forecasting.

 
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