a) The Ministry of Works and Housing prepares its budget using activity volume as a base for control purposes. The Ministry’s normal level of activity is 70%. However in 2018, the Ministry had a peculiar challenge to the extent that they operated at 50% level of activity. Below is the budget for 2018.
Required:
i) Prepare a flexible budget for 50% level of activity. (7 marks)
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ii) Prepare a Variances Analysis Statement for the operational year 2018. (3 marks)
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b) Budgeting is an important process by which government plans its programmes and activities for a given fiscal period. For a budget to be effective in the delivery of economic and social agenda of government, the budgeting process should be linked to the macroeconomic and fiscal policies of the country. No wonder the Public Financial Management Act, 2016 (Act 921) has made extensive provision on macroeconomic and fiscal policies to guide the government in its budget formulation and execution.
The budgeting process is preceded by a fiscal policy planning to serve as a foundation for the realization of the inspiration of the budget. A national budget is a means to an end and not an end in itself, therefore it should be controlled and managed holistically to achieve the desired economic, fiscal and social outcomes. The Minister of Finance, the Principal Account Holders and Principal Spending Officers are actively involved in post budget management and control activities at various levels to ensure that the budget targets are achieved.
Required:
i) Explain the primary fiscal policy objective of government and identify THREE (3) guiding principles in the formulation and implementation of a fiscal policy objective. (3 marks)
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Government Fiscal Policy is the term used for government’s policy of taxation. The primary fiscal policy objective of government is to ensure macroeconomic stability within the macroeconomic and fiscal framework of the country.
Under the PFM Act 2016, the following principles guide the formulation of fiscal policy objective.
- sufficient revenue mobilisation to finance Government programmes;
- maintenance of prudent and sustainable levels of public debt;
- ensuring that the fiscal balance is maintained at a sustainable level over the medium term;
- management of fiscal risks in a prudent manner; and achieving efficiency, effectiveness and value for money in expenditure
ii) Explain FOUR (4) post budget management and control activities prescribed under the Public Financial Management Act, 2016 (Act 921). (4 marks)
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- Mid-year review
- Budget performance report
- Supplementary budget
- Virement
- Reallocation of funds
- Cash forecasting
c) According to Section 20 of the Public Financial Management Act, 2016 (Act 921), the Minister of Finance shall subject to the approval of cabinet, issue guidelines for the preparation of the budget for each financial year and circulate copies of the guidelines to each Covered Entity not later than 30 June each year. Budget Guidelines play an important role in budget development.
Required:
State and Explain THREE (3) importance of Budget Guidelines in Public Sector Accounting and Finance. (3 marks)
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Budget Guidelines seek to provide clear instructions about the processes and procedures MDAs and MMDAs should use to prepare their budget proposals and budget estimates.
Below are the importance of Budget Guidelines in Public Sector Accounting and Finance
- control of aggregate expenditure to ensure affordability; that is, consistency with the macroeconomic constraints;
- effective means for achieving a resource allocation that reflects expenditure policy priorities;
- efficient delivery of public services (productive efficiency); and
- minimization of the financial costs of budgetary management (i.e., efficient budget execution and cash and debt management practices).