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ADB Grant 0133-CAM: Public Financial Management in Rural Development Ministries (Component 1) Analysing Budgets March 22 - 25, 2010, Day 4- Answer 1 Answer Q1 1. Main tools of budget presentation to MEF are: • Brief historical of previous budget performance • Main priority programs, sub-programs response to Ministry policy/strategy within the year • Summarized budget of the ministry by Program, Sub-sector and by non-program, and showing sources of funds (may have table and pie chart) • Summarized budget of the ministry by economic classification with previous year of budget performance and next three years forecasting (may use graph; column and line graphs) • Full budget annexes including measurable 2 indicators. Answer Q2 2. Summary of entity’s budget for showing to your top management: • Priority and normal sub-programs, activities and target locations • Showing previous performance of the priority/normal sub-programs, activities at any target locations. • Showing previous results and budgets for multi year (3 years) by economic classification using graphs (pie, column, line graphs to explain). 3 Answer Q3 3. Economic classification shows the nature of types of revenue, expenditure, assets and liabilities. Economic Classification in Cambodia is as follows: • Economic class: Class 1: Capital Class 2: Asset Class 4: Third party account Class 5: Finance account Class 6: Current expenditure Class 7: Revenue • Chapter and chart of accounts (see Prakas 2008). 4 Answer Q4 4. Explain the capital and recurrent cost in the preparation of budget. • Capital cost: The cost of investment or developing any areas of the sector/sub-sector. • (Capital investments are assets which are held for the medium or long term, with the purpose of achieving the entity’s objectives • Recurrent cost: The cost of operational or for running sector/sub-sector and daily activities. • Those two are important for development program/project. 5 Answer Q5 5. Cost structure – is an analysis of how the value of goods, works and services varies with the level of activity in an organisation. Cost structure can be used for predicting the next multiple year cost of those goods, works and services. Cost structure consist of fixed cost and variable cost. Variable cost can be further analyzed by examining which cost drivers cause the variability. continued...... 6 Answer 5 - continued • Cost structure is important for budget preparation, it helps budgeters in analysing the historical cost and then they may predict future costing for goods, works and services for a proper cost at future market price. Answer Q6 6. Analysis of past results against GDP allows the budgeter to see how economic growth has affected revenues and costs. • GDP forecasts contribute to budgeting by helping the budgeter to build up multiple year budgets allowing for the predicted economic growth rate. • Government uses GDP estimates when making decisions affecting the economy and measuring the effects of strategic decisions on the economy. 8