Question

Question 2 [Budgeting]

A) The human resources manager of your firm is worried about the amount of time and resources consumed by the budget committee annually. She believes the whole process is a waste of time and that departments should be allowed to set their budgets. But you also reckon that a budget is based on the policies needed to fulfil the objectives of the entity i.e. it is a plan consisting of objectives and what to do to achieve the objectives. As an account officer in the finance department, the head of finance has asked you to address the fears of the HR manager in a memo. You are required identify at least four (4) budgetary design issues and discuss the questions that these issues raise together with solutions that may be adopted in practice. Also, analyze the pros and cons of for her proposal. [25 marks]

B) Ashesi University is considering the addition of a new programme - Law. Even though management is content with the profitability projections of the program, the Chief Financial Officer recommends the preparation of cash budget in addition to the financial projections. Explain why the Chief Financial Officer will be insisting on the inclusion of the cash budget. [10 marks]

[Question 2 = 35 marks]

Answer 1

Answer:

A)

Budgetary Design/Planning issues:

The following are the most widely recognized issues faced in planning budget:

Time :

Numerous budget benefactors working with multiplying forms of a similar static spreadsheet set aside much effort to coordinate, order, and unite. From the time spent approving numbers to the lost hours spent following individual budget supporters down, numerous CFOs have detailed going through upward of 250 hours of their time on the budgeting procedure alone.

Correspondence :

There are a huge amount of moving parts inside a whole organization previously, during, and after the budgeting procedure. Each stage requires contribution from budget makers, supporters, and approvers, yet numerous organizations don't have an instrument that causes them team up. They end up planning in storehouses, with no alignment with different divisions or around the ultimate objective.

Unpredictability :

Another issue that many budget proprietors face during the multi-layered budgeting process is managing cutoff times and unpredicted changes. In what ought to be a basic fix, any change or acclimation to a budget brings about a confounded to and fro tango of re-trying numbers, reacting to questions, and re-sending spreadsheets.

Adaptability :

While making a budgeting archive to be utilized by all directors in an organization, it's imperative that the structure or spreadsheet they are required to fill in be normalized and straightforward. The difficulty is, uncontrolled spreadsheets don't take into account the structure and labeling you requirement for all your distinctive budget supporters. Thus, numerous individuals become mixed up in the details and struggle with giving exact reactions.

The above Solutions ought to be talked about at the board level and not at departmental level other generally speaking optimality won't be achived which will lead the organization to loss of target objectives.

Further the followings are the Pros and Cons for the HR supervisor proposition:

Pros:

• Budegting includes extra Cost.
• It requires extra time since we need to make additional attempting to help our budget, for example, why we are assigning a specific amount to specific action and so forth.
• There might be resistance between offices or functions, which may result into operational plans being in strife.
• Different analysis and reports are presented to the executives past the point where it is possible to have any impact.

Cons:

• Budgeting builds the probability that the organization objectives and goals will be accomplished.
• Helps in characterizing stengths and weaknesses on which the entity can focus.
• Issues can be envisioned and maintained a strategic distance from by conceivable therapeutic activity.
• Better distribution and understanding of the duties and goals by the staff.

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B)

Financial projection:

In its least complex structure, a financial projection is a forecast of future incomes and costs. Regularly, the projection will represent internal or historical information and will incorporate an expectation of outer market factors.

All in all, you should create both short-and mid-term financial projections. A short - term projection represents the first year of your business, ordinarily outlined year by year. A mid-term financial projection ordinarily represents the coming three years of business, laid out year by year.

Organizing Your Financial Projection

There are numerous online formats for financial projections that are a good spot to begin when you are getting ready to draft your projections. It is likewise suggested that you incorporate graphs and tables while clarifying overflowing measures of numerical information; it is a much cleaner and drawing in introduction than just sections of numbers and figures.

Key Elements of Your Financial Projection

Every single financial projection ought to incorporate three sorts of fiscal statements:

Income Statement:

An Income Statement shows your incomes, costs and profit for a specific period. In the event that you are building up these projections before beginning your business, this is the place you will need to do the bulk of your determining.

The key segments of a income statement are:

Income / Revenue : This is the cash you will earn from whatever merchandise or services you give.

Costs/Expenses : Be certain to represent the entirety of the costs you will experience, including Direct Costs (for example materials, equipment rentals, representative wages, your pay, and so forth.) and General and Administrative Costs (for example bookkeeping and legitimate expenses, promoting/advertising, bank charges, protection, office lease, broadcast communications, and so forth.).

Total Income – Your income excluded from your costs, before income taxes.

Income Taxes

Net income : Your  aggregate income without income taxes

Cash Flow Projection: A Cash Flow Projection will show to an loan official or financial specialist / investor that you are a good credit chance and can pay back a loan if it's conceded. The three areas of a Cash Flow Projection are:

Cash Revenues : This is a overview of your evaluated sales for a given timeframe. Be certain that you just record for money sales you will gather and not credit.

Cash Disbursements : Look through your ledger and rundown the entirety of the money consumptions that you hope to pay that month.

Reconciliation of Cash Revenues to Cash Disbursements ; This one is really simple: you simply take the amount of money disbursement and take away it from your complete cash revenue. On the off chance that you have an equalization from the earlier month, you'll need to convey this sum over and add it to your cash revenue total.

Note : One of the key pitfalls of taking a shot at your cash flow projections is as a rule excessively hopeful about your revenue.

Significance of cash budget:

A cash budget is a fiscal tool intended for restricting an organization's uses to the amount of money it really has accessible. The option in contrast to a cash budget is one that depends on the accessibility of credit, or cash that should be reimbursed down the line.

Practical Benefits:

The most prompt practical advantage of a cash budget is limiting your spending so you don't acquire debt. A cash budget includes a practical evaluation of how much cash you will have coming in during an up and coming period. Your judgments of how much cash your business has accessible to spend depend on these forecasts, constraining you to spend inside your methods. It constrains you to limit optional buys to things that you can pay for out of the money you have on hand.