- 20 Marks
Question
In order to ameliorate the transportation challenges being encountered by civil servants, Welfare State of Nigeria gave motor vehicle, tri-cycle, and motorcycle loans and advances for its workers. The workers were granted loans and advances equivalent to their annual basic salary. The total fund available for the loan was N1 billion. The officers that applied for the loans and their grade levels are as follows:
- 250 officers – GL 01 – 05 at an average annual basic salary of N258,000;
- 100 officers – GL 06 – 07 at an average annual basic salary of N450,000;
- 50 officers – GL 08 and above at an average annual basic salary of N650,000.
The interest rate payable on the loans and advances is 12.5% p.a. to take care of the time value of money.
Required:
(a) You are required to calculate:
i. The total loans and advances that were given to the workers, showing the balance of the fund not yet accessed.
(10 Marks)
ii. The aggregate interest paid on the loans and advances.
(2 Marks)
(b) Discuss:
i. Four conditions which have to be fulfilled for the grant of correspondence advance.
(4 Marks)
ii. Two requirements for granting and repaying correspondence advance.
(4 Marks)
Answer
a. Calculation of total loans and advances and balance of the fund not yet accessed:
i. Total loans and advances:
- Loans to GL 01 – 05 (250 officers):
= 250 officers × N258,000
= N64,500,000 - Loans to GL 06 – 07 (100 officers):
= 100 officers × N450,000
= N45,000,000 - Loans to GL 08 and above (50 officers):
= 50 officers × N650,000
= N32,500,000
Total loans granted:
N64,500,000 + N45,000,000 + N32,500,000 = N142,000,000
Total fund available: N1,000,000,000
Balance of the fund not yet accessed:
N1,000,000,000 – N142,000,000 = N858,000,000
ii. Aggregate interest paid on the loans and advances:
The interest rate is 12.5% p.a.
- Interest on GL 01 – 05 loans:
= N64,500,000 × 12.5% = N8,062,500 - Interest on GL 06 – 07 loans:
= N45,000,000 × 12.5% = N5,625,000 - Interest on GL 08 and above loans:
= N32,500,000 × 12.5% = N4,062,500
Total aggregate interest:
N8,062,500 + N5,625,000 + N4,062,500 = N17,750,000
b. Conditions and requirements for the grant of correspondence advance:
i. Four conditions that must be fulfilled for the grant of correspondence advance:
- Justification of necessity: The applicant must provide a valid reason for requiring the advance, showing that it is essential for performing their official duties.
- Approval from superior authority: The advance must be approved by the relevant higher authority or department before it can be granted to the officer.
- Specified repayment plan: The advance must have a clearly defined repayment schedule, outlining how and when the amount will be repaid to the government.
- Adherence to guidelines: The advance must comply with existing financial regulations and guidelines set by the government to ensure proper accountability.
ii. Two requirements for granting and repaying correspondence advance:
- Written Application: The officer must submit a formal written application, detailing the purpose of the advance and the amount required, subject to the approval of the head of the department.
- Repayment Deductions: The repayment of the advance is typically made through deductions from the officer’s monthly salary over an agreed period until the full amount is repaid.
- Tags: Civil servants, correspondence advance, Interest Rate, loans and advances, Transportation
- Level: Level 2
- Topic: Government Expenditure
- Series: NOV 2018
- Uploader: Kwame Aikins