This book supports FNSACC303A Perform financial calculations in the Financial Services Training Package. Software Publications Pty Ltd, April 2012

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1 Perform Financial Calculations This book supports FNSACC303A Perform financial calculations in the Financial Services Training Package. Software Publications Pty Ltd, April 2012 Ian Berry - MIPA ISBN nd edition Disclaimer All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, scanning, recording, or any information storage and retrieval system, without permission in writing from Software Publications Pty Ltd. No patent liability is assumed with respect to the use of the information contained herein. While every precaution has been taken in the preparation of this book, the publisher and authors assume no responsibility for errors or omissions. Neither is any liability assumed for damages resulting from the use of the information contained herein. Software Publications Pty Ltd (ABN ) Head Office Unit Gibbes Street Chatswood NSW 2067 Phone: (02) Fax: (02) Australia toll free numbers Phone: Fax: Published and printed in Australia 2 Software Publications Pty Ltd, 2012

2 WHAT YOU NEED TO COMPLETE THIS UNIT Your own copy of this workbook. Basic computer knowledge to log on to a computer, use a mouse, etc. Calculator. Access to a computer with Microsoft Excel 2010 or another spreadsheet program. If you are not using Microsoft Excel 2010, refer to How to use this workbook for further instructions. Access to the internet. Printer. USB memory stick. A folder to store printouts of worksheets and calculations performed to submit as your evidence portfolio. 12 Software Publications Pty Ltd, 2012

3 SECTION 1: INTRODUCTION TO FINANCIAL CALCULATIONS Section 1 Financial calculations are used daily in a business environment to provide solutions for a variety of business tasks. There are some basic techniques and functions you will need to know to complete financial calculations. There are a number of tools that will make performing financial calculations easier and are used widely in business, such as: calculator spreadsheet, e.g. Microsoft Excel accounting software, e.g. MYOB, Quicken, Xero online special purpose calculators such as those provided by lending institutions. Using a calculator You can use a handheld calculator or the calculator that comes with your computer operating system. Handheld calculator Software Publications Pty Ltd,

4 The basic functions of the handheld calculator are: Calculator symbol Function Explanation Symbol used in this workbook + Addition Subtraction 5 2 x Multiplication 7 x 2 x Division 10 2 / % Percentage 0.75 x 100 = 75% % = Equals = 5 = Microsoft Windows Calculator Microsoft Windows Calculator is located in the Accessories folder OR from the run dialogue box on the Start menu. In the Search programs and files box, type: Calc to locate the calculator program. The basic functions of the Windows Calculator are: Calculator symbol Function Explanation Symbol used in this workbook Addition Subtraction 5 2 Multiplication 7 * 2 x Division 10 / 2 / Percentage 0.75 x 100 = 75% % Equals = 5 = 16 Software Publications Pty Ltd, 2012

5 Using numeric keypads Section 1 Standard desktop keyboards and some laptop keyboards have a numeric keypad on the right side. The numeric keypad arranges the numerals 0 through 9, the arithmetic operators + (addition), (subtraction), * (multiplication), / (division) and the decimal point as they would appear on a calculator. The images above show the arithmetic operators and location of the numbers are the same, except for Enter this replaces the = operator. These characters are duplicated elsewhere on the keyboard, but the keypad arrangement allows you to enter numerical data or mathematical operations rapidly with one hand. The Num Lock key turns the numeric keypad on. If you are typing numbers from the numeric keypad and the numbers are not appearing in the document press the Num Lock key. To operate the calculator with the numeric keypad: 1. Open Calculator. 2. Check your keyboard light to see if Num Lock is on. If it is not, press Num Lock. 3. Using the numeric keypad, type the numbers and functions in the correct order. 4. Press Enter to complete the calculation. Exercise 1 1. Open Calculator. 2. Check your keyboard light to see if Num Lock is on. If it is not, press Num Lock. 3. Using the numeric keypad, type in Using the numeric keypad, type + to add. 5. Using the numeric keypad, type in Press Enter ( = ) to complete the calculation. The result will be Close Calculator. Software Publications Pty Ltd,

6 Calculation techniques BODMAS This term refers to the order in which calculations need to be completed to achieve the correct result. The order is: B racket O rders D ivision M ultiplication A ddition S ubtraction Any sets of calculations which are contained within a set of brackets need to be performed first. Generally powers and roots of the given number. Calculations which require dividing. Calculations which require multiplying. Calculations which require adding. Calculations which require subtracting. Examples 1. How do you work out ? Multiplication before Addition: First 6 2 = 12, then = How do you work out (3 + 6) 2? Brackets first: First (3 + 6) = 9, then 9 2 = How do you work out 12 / 6 3 / 2? Multiplication and Division rank equally, so just go left to right: First 12 / 6 = 2, then 2 3 = 6, then 6 / 2 = 3 4. What about 7 + ( )? 7 + ( ) 7 + ( ) Start inside brackets and then use orders to calculate square root first 7 + ( ) Then multiply 7 + (153) Then add Brackets completed, last operation is add 160 Answer 18 Software Publications Pty Ltd, 2012

7 Exercise 2 Section 1 Open Calculator or use a handheld calculator to perform the following simple calculations. Check your answers by performing the calculations more than once. Calculation Answer x 15 = = = / 4 = = (3 x ) 12 / 3 Fractions A fraction represents a part of a whole or any number of equal parts. A common fraction, such as,, consists of an integer numerator (above the line) and a non-zero integer denominator (below the line). The numerator represents a number of equal parts and the denominator indicates how many of those parts make up a whole. In the fraction the numerator, 3, tells us that the fraction represents 3 equal parts, and the denominator, 4, tells us that 4 parts equal a whole. Example You can claim of your telephone bill as an expense for your business. Your last bill was $ What is the business expense? 1. Find the portion of the whole by dividing the total by the denominator 235 / 4 = Then multiply that portion by the numerator x 3 = $ Software Publications Pty Ltd,

8 Decimals The word decimal means based on ten. To understand decimal numbers you must first know about place values. When you write numbers, the position of each number is important. In the number 327: 7 is in the units position, meaning just 7 ones (seven) 2 is in the tens position meaning 2 tens (twenty) 3 is in the hundreds position, meaning 3 hundreds (three hundred). The position of the decimal point is important. It is exactly to the right of the units position. Now the numbers can continue with smaller and smaller values, from tenths, to hundredths, and so on, for example: Units Tens Decimal point x bigger 10 x smaller 1/10 (tenths) 1/100 (hundredths) 1/1000 (thousandths) To express a fraction as a decimal, divide the numerator by the denominator: n d = n / d Examples 1. The Australian currency is a decimal currency, 100 cents = $1.00, 1000 cents = $ Using decimals make it easier to pronounce the values as well as using financial calculations to achieve results. 2. is expressed as the decimal Software Publications Pty Ltd, 2012

9 Section 1 3. An employee works 38 hours per week over 5 days. How many hours and minutes per day are worked? 38 / 5 = 7.6 hours The employee works 7 hours and 0.6 of another hour. So how many minutes does the 0.6 represent? 0.6 x 60 = 36 minutes Therefore an employee works 7 hours and 36 minutes each day. How can you check that this is correct? Multiply 36 minutes x 5 days = 180 minutes / 60 minutes (1 hour) = 3 hours Multiply 7 hours x 5 days = 35 hours Add the 3 hours + 35 hours = 38 hours worked in the week. Percentages A percentage is a way of expressing a number as a fraction of 100. It is often denoted using the per cent sign %. For example 45% is equal to or Percentages are used to express how large/small one quantity is relative to another quantity. The first quantity usually represents a part of, or a change in, the second quantity which should be greater than nil. Using the percentage function on a handheld calculator simplifies the calculation by removing the need to multiply or divide by 100. Examples 1. To work out 75% of 200 using the % button on a handheld calculator: a. Press 200 x 75 b. Then press the % button. The result will be A business is investigating an increase of $0.15 on a price of $2.50 and wants to know what % increase this will be. The percentage can then be used across a range of products / 2.50 = 0.06 Expressed as a percentage 0.06 x 100 = 6 this is therefore a 6% increase. Software Publications Pty Ltd,

10 3. A business is having an end of season sale and all prices will be marked down 30% the original price of the item is $150. What is the markdown price? What is 30% of 150? 30% x 150 = x = 105 = 45 the original price will be marked down by $45.00 Therefore the markdown price is $ An employee is taking 2 weeks annual leave and the leave attracts the annual leave loading of 17.5%. The employee s normal gross weekly wage is $ What is the gross value of leave loading? 750 x 2 = x 1500 = Therefore the gross value of leave loading is $ Rounding numbers There will be instances when calculations involving currency will result in fractions of a cent, e.g. $ It is not possible to pay a fraction of a cent, therefore these values are rounded to the nearest cent. If the fraction amount is 5 or greater, the cent amount is rounded up. If the fraction amount is less than 5, the cent amount is rounded down the fraction amount is removed but the cents value remains the same. Rounding is also used in other numeric calculations and the same principle applies, depending on the number of decimal places required after a whole number. Examples 1. A discount calculation comes to $ The last digit, 6, is greater than 5, therefore the amount is rounded up to $ A price increase calculation comes to $ The third digit after the decimal point, 3, is less than 5, therefore the rounded down value equals $ Software Publications Pty Ltd, 2012

11 Section 1 3. A calculation has provided the following result, pi = , but a professor has explained that rounding the calculation to 4 decimal places (showing 4 decimal places) will still provide an accurate calculation. To round pi = to 4 decimal places, look at the figure after 4 numbers following the decimal point: pi = is greater than 5, therefore the number before it (5) is increased to 6, giving the answer: pi = If the professor required rounding to 5 decimal places, you would look at the figure after 5 numbers following the decimal point: pi = is less than 5, therefore the number before it (9) will remain unchanged: pi = Exercise 3 1. Walter, the owner of a small welding business, is offering a major customer a 6.5% early payment discount if the customer settles his invoice of $15, within 7 days. What is the value of the discount? Walter has an employee taking 3 weeks annual leave and needs to calculate the annual leave loading of 17.5%. The employee s gross weekly wage is $ What is the value of leave loading? Software Publications Pty Ltd,

12 Exercise 4 1. Walter has an employee who worked 48 minutes overtime. Express this as a decimal of 60 minutes (1 hour) The employee is paid one and a half times his normal rate of $19.00 for overtime. What is the value of the overtime Walter s employee worked? Show your calculations Exercise 5 Walter has a shed on his property and claims a proportion of the electricity as a business expense. Of the total bill is claimable as a business expense and is private use. Walter has received an electricity bill for $1700. What is the business proportion of the expense? Show how you reached your result. 24 Software Publications Pty Ltd, 2012