- 20 Marks
L2 – Q73 – Cash Budgets and Master Budgets
Prepare a cash budget for Ministry of Commerce for April–June 202X, showing monthly and quarterly totals.
Question
On 31st March 202X the bank balance in the books of the Ministry of Commerce was GHC 900,000. The department provides you with the information below.
| Month | IGF GHC’000 | Govt releases GHC’000 | Donations GHC’000 | Salaries GHC’000 | Goods and services GHC’000 | Office equipment GHC’000 | Advances GHC’000 |
|---|---|---|---|---|---|---|---|
| Jan | 4,100 | 2,000 | 1,200 | 1,000 | 600 | 50 | |
| Feb | 900 | 500 | 320 | 300 | 40 | ||
| March | 1,300 | 500 | 400 | 320 | 400 | 50 | |
| April | 1,200 | 600 | 200 | 620 | 320 | 40 | |
| May | 1,000 | 600 | 550 | 220 | 60 | ||
| June | 1,000 | 600 | 200 | 660 | 420 | 500 | 50 |
Relevant notes to the data:
(i) The Internally Generated Funds (IGF) are made up of 70% cash receipts and 30% receivables. The receivables are collected as follows: 60% in the month following the service delivery and remaining 40% in the second month following the service delivery. The department is entitled to retention of 80% of the IGF collected and the remaining 20% is payable into the National Treasury (the central government fund) in the month in which the money is collected.
(ii) The department also enjoys budget allocation and Government promises to follow schedule.
(iii) The department anticipates some donations as shown in the table above. It is expected that 30%, 40%, and 70% of donations in March, April, and June respectively will be in cash. The remaining portions are expected to come in the form of materials.
(iv) The staff salaries will be paid at the end of each month.
(v) Goods and services are paid for one month in arrears.
(vi) The office equipment acquired in January will be paid for in the third month following the purchase, and the one to be acquired in June will be paid for immediately.
(vii) The office equipment is to be depreciated at 2.5% per month.
(viii) From January 20X0, staff of the department will be granted advances under an advance scheme approved by the government. The advances will be recovered in four equal monthly instalments, beginning in the month following the month in which the advances are granted (i.e. advances in January will be repaid in four equal monthly instalments beginning in February). Estimated advances are shown in the table above.
Required:
(a) Prepare a cash budget for the department for the Second Quarter of 202X (April – June 202X) showing the cash forecast for each individual month and the total for the quarter as a whole.
(b) Advise management based on the outcomes obtained in question (a) above.
Find Related Questions by Tags, levels, etc.
