Topic 1: Financial Management
ResortLife Development Project
ResortLife Developments is a large property development corporation that specialises in coastal developments in Australia, New Zealand and Fiji. You are the project manager on large construction site on the Sunshine Coast. The planning phase was completed on 31 March 2015 and construction commenced on 8 April. The first phase of construction (site preparation) is expected to be completed on 6 September 2015.
The project will be funded using a combination of internal funds and a bank loan. The loan facility was drawn down for the first time in May. See Appendix A for interest paid amounts.
During April the earth moving equipment moved in and started clearing the site. The earth moving contractors invoice monthly and ResortLife Developments have offered 29 day payment terms in return for favourable rates. There was some delay in certain areas due to mechanical failure of one of the main machines. See the source documents for their most recent statement.
A project in New Zealand had a contractual change that resulted in custom-made glazed tiles not being used. That project had already paid $230,000 for them six months ago. These expensive tiles would suit the Sunshine Coast project’s pool area. Although they will only be required in 9 months, they have been shipped to Australia and are currently in storage. The shipping cost of $3,500 has already been paid.
An entrepreneur from Fiji is looking at using ResortLife Developments to construct a similar project. He flew over to inspect the site and talk to you about the project. The travel costs including flights and accommodation amounted to $6,400. You spent a day with him highlighting risks, possible similarities and areas of difference which could incur additional costs.
The architect was paid a deposit of $90,000. The balance was due in April but the architect only sent the invoice in June. The architect fees were in the budget for the planning phase. They were paid for in August 2015.
ResortLife Developments works on a standard 8 hour day for employee and contractors. Overtime is paid at 1.25 of normal rates. Salaries and wages are paid on the last working day of every month.
An environmental impact study was carried out and the report was received in March. This cost $207,000 and was paid in March. As part of the report ResortLife Developments is required to ensure the drainage of 1.5 hectares is improved. This was not budgeted for and will cost $350,000. Envirocare Pty Ltd was contracted to carry out this work and $120,000 worth of work was completed and paid for on 30 June 2015.
In addition to the above-mentioned items, one of your team members has compiled a list of other costs incurred to date. See Appendix A.
Questions
1. List the costs that will be allocated against your project and should be disclosed in the Project Accounts at the end of the current financial year, ending 30 June 2015. In a column on the right provide any assumptions you made or your reasons for including the cost. 60 Marks
2. Discuss how the above transactions would have impacted the project’s cash flow for the months April to June. 40 Marks
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