Preparation Of Personal Cost Budget SS3 Financial Accounting Lesson Note

PREPARATION OF PERSONNEL COST BUDGET

Budget: A budget is a quantitative statement of income and expenditure.

The personnel cost budget is prepared to show the analysis of the basic salary and allowances of the staff members of each government ministry department in  a particular year.

 PROCEDURES FOR PREPARING THE COST BUDGET

1. Identification of different positions in the ministry or parastatals
2. Calculation of the number of staff in each post
3. Identification of grade level.
4. Calculation of the basic salary, allowances, etc.

 ANNUAL INCREMENTAL RATE

1. If the officers are not on the first step of their salary; the formula below will be used for calculating the staff total emolument

Formula (new stop 1 ) incremental rate) + basic salary

Illustration

Position                  No        Grade Level            Salary

Director General        1            17        300,000 x 50,000

Director                    4              16          200,000 x 30,000

Assume the staff are on step 3

Solution 

Director general:    =    (New step – 1) incremental rate + basic salary

            =    (3 – 1) 50,000 + 300,000

            =    2(50,000) + 300,000

            =    N400,000

4 Director        =    (New step – 1) incremental rate + basic salary

            =    (3 -1) 30,000 + 200,000

            =    2(30,000) + 200,000

            =    60,000 + 200,000

            =    N260,000

2. When employees are on step one

Illustration: The following information was extracted from the Ministry of Finance on 31/10/99.

Post             Grade Level        No. in post            Rate

DG            17            1                40,000 x 4000 – 60,000

Directors        16            3                32,000 x 3600 – 53,600

Chief Accountant    14            4                28,000 x 2400 – 44800

Additional information 

Grade Level             Housing        Transport

12 and above       8400 P.A        6250 P.A

07 and 11            3600 P.A        2500 P.A.

Workings 

One DG’s Basic salary    = 40,000

Housing allowance        = 8400

Transport allowance        = 6250

3 Directors’ basic        =    32000 x 3 = 96,000

Housing allowance         =    8400 x 3 = 25,200

Transport allowance        =    6250 x 3 = 18,750

4 Chief Accountants 

Accounts’ Basic Salaries    =    28,000 x 4 = 112000

Housing allowance        =    8400 x 4= 33,600

Transport allowance        =    6250 x 4 = 25,000

Solution 

PERSONNEL COST BUDGET

Post Grade            No        Basic        Housing     Transport     Total 

                               N        N           N                 N

Director General    17    1        40,000    8400        6250        54650

Directors        16    3        96000        25200        18750        139950

Chief Accounts    14    4        112,000    33600        25,000    170,600

                        248,000    67,200    50,000    365,200

Total Personnel Emolument = N365,200

EVALUATION

1. Define Public-sector accounting 
2. List seven items of government expenditure.

GENERAL EVALUATION QUESTIONS

1. What is depreciation?
2.  Explain the following methods of calculating depreciation (i) straight line  (ii) reducing balance     (iii) sum of the years’ digit
3. What is the difference between depreciation and amortisation?
4. State ten uses of the general journal
5. Explain the principle of the double entry system. 

READING ASSIGNMENT 

1. Essential Financial Accounting by O.A. Longe,  Pages 376-388
2. Simplified Bookkeeping and Accounting by Femi Olatunji, Pages 489-513 

WEEKEND ASSIGNMENT 

1. Public sector accounting is done on ————-the basis of (a)credit (b)cash (c)hire purchase (d)instalment payment 
2. Government parastatal accounting system is on ————-basis (a)cash (b)accrual (c)General (d)all of the above
3. Public sector accounts reports are to the ————-(a)shareholders (b)directors (c)public (d)customers
4. The chief accounting officer to the government ministries is (a)auditor general (b)minister of finance (c)secretary to the federal government (d)accountant general of the federation 
5. The formula for calculating emolument where employees are on step 4 is 
   1. (4-1) x salary (b)(4+1) x salary (c) (4-1) incremental rate (d) (4-1) incremental rate + basic salary.

THEORY

1. State the formula to apply for (i) calculating emolument when employees are on step 1 and (ii) when employees are on step 3
2. State seven differences between public and private sector accounting.