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Ankawa LTD makes and sells a single product ‘Dee’. The following information is available for use in the budgeting process for the year 2025.
i) Sales targets have been proposed for four quarters in 2025 and the first quarter in 2026:
| Year | Quarter 1 | Quarter 2 | Quarter 3 | Quarter 4 | Quarter 1 (2026) |
|---|---|---|---|---|---|
| Sales (GH¢) | 240,000 | 160,000 | 144,000 | 224,000 | 192,000 |
Selling price per unit of Dee is expected to be GH¢20.
ii) Inventory levels
At 31 December 2024: Finished units of Dee: 3,000 units
Raw materials: 7,000kg
Closing inventory of finished product Dee at the end of each quarter is budgeted as a percentage of sales units of the following quarter:
Closing inventory of raw materials is budgeted to fall by 600kg at the end of each quarter.
iii) Product Dee unit data:
iv) Other budgeted quarterly expenditure for 2025:
| Quarter | Fixed Overhead (GH¢) | Capital Expenditure (GH¢) |
|---|---|---|
| Quarter 1 | 10,000 | 10,000 |
| Quarter 2 | 18,000 | – |
| Quarter 3 | 27,000 | – |
| Quarter 4 | 30,000 | – |
v) Depreciation
vi) Inventory of product Dee is valued on a marginal cost basis for internal budget purposes.
Required:
Prepare the budgeted profit and loss account for the year ended 31 December 2025.
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Efforts to improve Public Financial Management (PFM) Systems in Ghana led to the Ghana Integrated Financial Management Information System (GIFMIS), which is an adaptation of the Integrated Financial Management Information System (IFMIS). The rationale of GIFMIS is to establish an integrated ICT-based PFM system in Ghana at national, regional, and district levels.
State FOUR benefits of GIFMIS to the government of Ghana.
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Working Capital Calculation
A company has annual sales revenues of GH¢45 million and the following working capital periods:
| Working Capital Item | Period (months) |
|---|---|
| Inventory conversion period | 2.5 |
| Accounts receivable collection period | 2.0 |
| Accounts payable payment period | 1.5 |
Production costs are 70% of sales revenue.
Required:
Calculate the total amount held in working capital excluding cash and cash equivalents.
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Cash Collected from Debtors and Payments to Creditors
The following balances have been extracted from the Statement of Financial Position of Zena LTD as at 31 December 2023:
| Account | Amount (GH¢) |
|---|---|
| Debtors | 55,000 |
| Creditors | 60,000 |
Additional information from the 2024 budget:
Required:
i) The cash to be collected from debtors during the year.
ii) The cash to be paid during the year.
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You are the management accountant of a large manufacturing company in Kaduna. A management retreat has been planned for next week to set the agenda for the preparation for next year’s budget.
Required:
a. Outline the key stages in the planning process that link long-term objectives and budgetary control. (8 Marks)
b. Explain the meaning of the terms ‘fixed budget’, ‘rolling budget’, and ‘zero-based budget’, and discuss the circumstances under which each budget might be used. (8 Marks)
c. Discuss whether time series analysis may be preferred to linear regression as a way of forecasting sales volume. (4 Marks)
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Adrac Community School was founded by Adrac Community Resident Association of
Garki, Abuja, Nigeria. The school is being supervised by a board of governors made up
of selected experienced members of the community. The school is not allowed to charge
the pupils any fee as it is a community project donated to assist members of the
community.
Adrac Community Residents Association pays the school ₦21,000 for each child
registered at the beginning of the school year, which is September 1, and ₦18,000 for
any child joining the school part-way through the year. The school does not have to
refund the money to the association if a child leaves the school part-way through the
year. The number of pupils registered at the school on September 1, 2019 is 720, which
is 10% lower than the previous year. Based on past experience, the probabilities for the
number of pupils starting the school part-way through the year is as follows:
The school‟s headmistress normally prepares annual budget for consideration of the
board of governors. Since she is not too comfortable with figures, she does not
understand how to use the probability distribution provided for her annual budget.
Therefore, she just used simple average for her calculation of number of pupils expected
to join late. The revenue budget for 2019/2020 submitted by the headmistress is as
follows:
The headmistress uses incremental budgeting to budget for her expenditure, taking
actual expenditure for the previous year as a starting point and simply adjusting it for
inflation, as shown below
Notes
i. N600,000 of the costs for the year ended 30 June 2019 related to standard
maintenance checks and repairs that have to be carried out by the school every
year in order to comply with the local government health and safety standards.
These are expected to increase by 3% in the coming year. In the year ended 30
June 2019, N280,000 was also spent on redecorating some of the classrooms. There will be no redecoration in the coming year.
ii. One teacher earning a salary of N520,000 left the school on 30 June 2019 and
there are no plans to replace her. However, a 2% pay rise will be given to all staff
with effect from 1 December 2019.
iii. The full N1,300,000 actual costs for the year ended 30 June 2019 related to
improvements made to the school building. This year, the canteen is going to be
substantially improved, although the extent of the improvements and level of
service to be offered to pupils is still under discussion. There is a 0·7 probability
that the cost will be N1,450,000 and a 0·3 probability that it will be N800,000.
These costs must be paid in full before the end of the year ending 30 June 2020.
The school‟s board of governors, who review the budget, are concerned that the budget
surplus has been calculated incorrectly. They believe that it should have been calculated
using expected income, based on the probabilities provided, and using expected expenditure, based on the information provided in notes i to iii. They believe that incremental budgeting is not a reliable tool for budget setting in the school since, for
the last three years, there have been shortfalls of cash despite a budget surplus being
predicted. Since the school has no other source of funding available to it, these
shortfalls have had serious consequences, such as the closure of the school kitchen for a considerable period in the last school year, meaning that no meals were available to pupils. This is thought to have been the cause of the 10% fall in the number of pupils registered at the school on 1 September 2019.
Required:
a. Redraft the school’s budget for the year ending June 30, 2020, per the board’s recommendations. (6 Marks)
b. Discuss the advantages and disadvantages of using incremental budgeting. (4 Marks)
c. Describe the three main steps in preparing a zero-based budget. (6 Marks)
d. Discuss the extent to which zero-based budgeting could improve the budgeting process for Adrac Community School. (4 Marks)
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PQR Plc is preparing its budgets for the upcoming year and has forecasted two demand scenarios for its product range:
You are to assume only one forecast (either Forecast 1 or Forecast 2) will be selected. The expected variable unit costs for each product are:
The general fixed costs are budgeted at ₦20,000 for the year, with no specific fixed costs expected per product. Additionally, all three products use the same direct material, with a limited supply of 22,020 kgs available for the budget year.
Required:
a. Recommend, with supporting calculations, whether forecast 1 or forecast 2 should be adopted for the budget period. (11 Marks)
b. Prepare a report, addressed to the managing director, to explain the budget preparation process, with particular reference to: i. The principal budget factor (3 Marks)
ii. The budget manual (3 Marks)
iii. The role of the budget committee (3 Marks)
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National Chart of Accounts (NCOA) shows the complete list of budget and accounting items for General Purpose Financial Reporting (GPFS) and budgeting.
a. State FOUR characteristics of the National Chart of Accounts. (4 Marks)
b. Discuss the SIX structures of the National Chart of Accounts for budgeting. (12 Marks)
c. Identify and briefly explain FOUR steps for budgeting with the National Chart of Accounts. (4 Marks)
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Ogbunigwe Nigeria Limited is a big and reputable publishing firm established in the early 1970’s. The company has recently been taken over by Wisdom International Publishing Company (WIPC) – a multinational company operating in several countries of the world.
Mr. Pampam, who is the Managing Director of WIPC, has been sent from the company’s headquarters to review, among other things, the budgeting and reporting system used by Ogbunigwe Nigeria Limited.
During his visit to all the departments, he discovered that monthly budgets are prepared for each department in the company. Upon request, the newly acquired company submitted the last budget statement for the notebook production department, which covered Quarter 3 of 2022, as shown below:
Budget statement for Quarter 3
Department: Notebook Production
| Particulars | Actual Results (N’000) | Budget (N’000) | Variances (N’000) |
|---|---|---|---|
| Direct materials | 1,512 | 1,440 | (72) |
| Direct labor | 738 | 720 | (18) |
| Variable production overhead | 474 | 432 | (42) |
| Fixed production overhead | 354 | 336 | (18) |
| Variable administrative overhead | 246 | 240 | (6) |
| Fixed administrative overhead | 300 | 288 | (12) |
| Total costs | 3,624 | 3,456 | (168) |
| Sales value of production | 4,650 | 4,464 | 186 |
| Profit | 1,026 | 1,008 | 18 |
The Head of Department of the notebook production department, Mr. Josiah Okoli, commented on the state of affairs of the department. He revealed that the budget statement presented was based on 72,000 units with a standard labor processing time of 2.85 hours per unit.
Mr. Pampam observed that Mr. Josiah Okoli was not enthusiastic about the budget system. He viewed it as a pressure system imposed by the company to portray some departmental managers in a bad light. He pointed out that the system was hurriedly introduced by Dynamic Financial Konsult about twelve months ago. The consultant did not provide sufficient explanation to assist users of the budget to understand the system. Mr. Josiah Okoli expressed doubt about the competence of the consultant and believed the system was not suitable for Ogbunigwe Nigeria Limited. He even stated that his department might have actually made a loss, as against the reported profit.
This situation cuts across many departments, making it imperative and urgent to resolve the issues with the budget system. Your advice to Mr. Pampam will assist tremendously in addressing these problems.
Required:
a. Redraft the budget statement in a more informative manner, showing the relevant variances. (12 Marks)
b. State the general behavioral problems associated with budgeting, and relate these issues to this situation. (4 Marks)
c. Recommend ways to make the budgeting system more useful and acceptable in the current situation. (4 Marks)
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b) The budgeted Income Statement for Zeedan Company for the year 2020 is presented below.
| Description | GH¢ |
|---|---|
| Sales revenue | 930,000 |
| Cost of sales | 558,000 |
| Gross profit | 372,000 |
| Total expenses | 225,000 |
| Net profit | 147,000 |
Notes:
i) Monthly sales in each quarter are the same. The sales for January are GH¢50,000 and this will remain unchanged up to March when it will increase by GH¢20,000 from April and remain unchanged for the remaining two months in the quarter. Third quarter monthly sales will be GH¢90,000 each while those of the fourth quarter are GH¢100,000 each.
ii) 20% of all sales are on a cash basis, 40% of the monthly sales are paid in the month after sales, and the balance is paid the second month after sales. No bad debt is expected.
iii) The monthly cost of sales represents 60% of the current month’s sales. Inventory is kept at 60% of the following month’s cost of sales. All purchases are paid in full after one month.
iv) Included in the expenses is a depreciation of GH¢87,000. The monthly expenses paid as and when incurred are GH¢10,000. This is fixed in January but increased by 20% effective April.
Required:
Extract the Cash Budget for the second quarter of the year, showing the cash balance for each month in the quarter.
(10 marks)
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Brofre Limited retails fertilizer to farmers in Ghana. The company has approached its bankers to provide funding for next year’s operations, and a three-month master budget has been requested for review by the bankers.
You have been approached by the management as a consultant to prepare the 1st quarter budget for the banker’s consideration for its next year’s operations.
End of Accounting year December 2014:
| Item | GHS |
|---|---|
| Debtors | 23,000 |
| Bank balance | 55,000 |
| Fixed asset at cost | 698,000 |
| Provision for depreciation | 98,000 |
| Creditors Balance | 48,000 |
| Operating expenses (Dec) | 60,000 |
| Sales (Dec) | 400,000 |
| December Ending Inventory | 20,000 |
| Retained earnings | 120,000 |
Additional information provided:
You are required as a consultant for Brofre Limited to prepare for their bankers:
a) The budgeted income statement for the three months. (7 marks)
b) The budgeted statement of financial position for the three months. (7 marks)
c) The cash budget for the three months. (6 marks)
(Total = 20 marks)
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Question:
Strategic planning has been defined as the process of setting objectives for the organisation and laying down the policies which are to govern the acquisition, usage, and disposal of the resources used to achieve those objectives.
Required: Explain the following:
i) Strategy
ii) Policies
iii) Procedures
iv) Budget
v) Rules
(10 marks)
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The Ghana Integrated Financial Management Information System (GIFMIS) was launched to eradicate or reduce the endemic challenges in the public financial management system. Many experts hailed it as the panacea for the developmental challenges of Ghana.
Required:
In reference to the above, explain FIVE (5) challenges that the GIFMIS promises to address in public financial management in Ghana.
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The following transactions relate to Tham District Assembly (TDA):
i) The estimated internally generated funds of the Assembly for the fourth quarter of 2021 and the first quarter of 2022 are given below:
| Source of Revenue | Oct 2021 (GH¢’000) | Nov 2021 (GH¢’000) | Dec 2021 (GH¢’000) | Jan 2022 (GH¢’000) | Feb 2022 (GH¢’000) | Mar 2022 (GH¢’000) |
|---|---|---|---|---|---|---|
| Fees and Charges | 300,000 | 320,000 | 310,000 | 400,000 | 450,000 | 420,000 |
| Licenses | 120,000 | 120,000 | 200,000 | 180,000 | 140,000 | 160,000 |
| Property rate | 800,000 | 1,200,000 | 1,000,000 | 900,000 | 900,000 | 1,300,000 |
| Fines and Penalties | 50,000 | 50,000 | 40,000 | 60,000 | 80,000 | 80,000 |
ii) The revenue policy of the Assembly is as follows:
iii) Experience shows that about 10% of the amount owed in respect to property rate is never received.
iv) Decentralised transfer is estimated at GH¢2,000,000 and GH¢1,800,000 for the first and second quarters of 2022 respectively. The decentralised transfers are often released in the second month of each quarter, except for the first quarter, which is released in the last month.
v) Goods and services are paid two months in arrears. The projected expenses in the Assembly’s 2021 and 2022 budgets are as follows:
| Oct 2021 (GH¢’000) | Nov 2021 (GH¢’000) | Dec 2021 (GH¢’000) | Jan 2022 (GH¢’000) | Feb 2022 (GH¢’000) | Mar 2022 (GH¢’000) |
|---|---|---|---|---|---|
| 365,000 | 280,000 | 280,000 | 290,000 | 200,000 | 320,000 |
vi) The Assembly budgets to acquire equipment and furniture amounting to GH¢300,000,000 in the month of February 2022. It has planned that 50% of the amount will be paid in the month of purchase, and the balance paid equally over the following two months. The equipment and furniture will be depreciated at the rate of 10% per annum.
vii) The cash and cash equivalent balance at the end of the 2021 financial year was GH¢63,000.
Required:
Prepare a Cash Flow Forecast for the first quarter of 2022, showing clearly the forecast for each month and the quarter as a whole. (10 marks)
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KTM Regional Hospital is a public referral hospital under Ghana Health Services established in 1980. The hospital is a sub-vented organization that finances its operations from Internally Generated Revenues (IGR) and government subventions. In order to forecast for the first quarter of 2017, you are provided with the following information on revenues and expenditure projections of the Hospital for the fourth quarter of 2016 and first quarter of 2017.
| Month | IGR (GH¢ ‘000) | Subvention (GH¢ ‘000) | Donations (GH¢ ‘000) | Non-Established Post (GH¢ ‘000) | Goods and Services (GH¢ ‘000) | Non-Financial Assets (GH¢ ‘000) | Other Expenditure (GH¢ ‘000) |
|---|---|---|---|---|---|---|---|
| October 2016 | 2,000 | 8,000 | 200 | 300 | 700 | 1,200 | 120 |
| November 2016 | 2,400 | – | – | 310 | 740 | – | 240 |
| December 2016 | 2,500 | – | 100 | 400 | 900 | 1,000 | 125 |
| January 2017 | 3,000 | 10,000 | 500 | 600 | 800 | – | 130 |
| February 2017 | 3,200 | – | 700 | 820 | 1,600 | – | 150 |
| March 2017 | 3,400 | – | 900 | 800 | 840 | – | 290 |
Additional Information:
Required:
i) Prepare a cash forecast for the Hospital for the first quarter of 2017, showing the forecast for each month and that of the quarter as a whole. (12 marks)
ii) On the basis of the cash forecast in (i) above, advise management on the financing options available to them for the 2017 fiscal year. (4 marks)
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The Minister of Finance is mandated by law to develop a budgetary system throughout the public sector. Recently, the government has moved away from Activity-Based Budgeting to Programme-Based Budgeting system for many reasons.
Required: i) Distinguish between Activity-Based Budgeting and Programme-Based Budgeting. (4 marks)
ii) Explain FOUR advantages that Programme-Based Budgeting has over the Activity-Based Budgeting. (8 marks)
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