- 15 Marks
MA – L2 – Q13 – Cash budgets and master budgets
Prepare a cash budget for the Department of Commerce for Q2 202X, showing monthly and quarterly cash forecasts.
Question
On 31st March 202X, the bank balance standing in the books of the Department of Commerce was GHC 900,000. The Department provides you with the information below.
| Month | IGF GHC000 | GoG releases GHC000 | Donation GHC000 | Wages and salaries GHC000 | Goods and services GHC000 | Office equipment GHC000 | Advances GHC000 |
|---|---|---|---|---|---|---|---|
| Jan | 4,100 | 2,000 | 1,200 | 1,000 | 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) is made up of 70% cash and 30% receivables. The receivables are collectible as follows: 60% in the month following the service delivery and the remaining 40% in the second month following the service delivery. The department is entitled to retention of 80% of IGF collected and the remaining 20% is payable into the National Treasury Fund in the month in which it was collected.
(ii) The department also enjoys a budget allocation from the Government of Ghana (GoG) and the government promises to make payments according to the schedule shown.
(iii) The department anticipates that it will receive some donations as scheduled 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) Wages and 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% of cost per month.
(viii) Staff of the department are granted advances under an advance scheme approved by the government. The advances will be recovered in four equal instalments beginning from the month following the month in which the advance is granted.
Required:
Prepare a cash budget for the department for the Second Quarter of 202X showing clearly the cash forecast for individual months and the total for the quarter as a whole.
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