EXAM 6

PROJECT ONE
Unit of competency covered
1. Develop and use personal budget

Given:

Suppose Ato Getachew is an employee of x- company and his monthly salary income is birr 10,000 and
for each New Year salary increases for growth by 10%. The budgeted variable expenditure is 30% of
salary and the remaining covers fixed expenditure and saving plan. His saving plan is 5% of fixed
expenditure. At the end of December 31; the actual expenditure is 80% of budgeted variable
expenditure, No changes to fixed expenditure and deficit or surplus is added or deducted from personal
saving. For the month of January, variable expenditure increases or growth by 10%.

Task 1.1. Demonstrate personal budget for December and January.

Task 1.2. Demonstrate budget variance for the month of December.
Task 1.3. Describe reasons for the budget variance.

ANSWERS Task 1.1

Ato Getachew
Personal budget
December

Description Amount
Income
Salary 10,000
Expenses
Variable expenses 3,000
Fixed expenses 6,666.67
Total expenses 9,666.67
Saving 333.33
VE = 10,000 x 30% = 3,000
Remaining = 10,000 – 3,000 = 7,000
Amount
FE + S = 7,000
FE = (5%FE) = 7,000
FE + 0.05FE = 7,000
(1 + 0.05)FE = 7,000
1.05FE = 7,000
1.05FE = 7,000
1.05 1.05
FE = 6,666.67
Saving = 6,666.67 x 5% = 333.33

1
Prepared by Ephrem M.
 Ato Getachew
Personal budget
December

Description Amount
Income
Salary 10,000
Expenses
Variable expenses 3,300
Fixed expenses 6,666.67
Total expenses 9,966.67
Saving 1,033.33
Salary = 10,000 + (10,000 x 10%)
= 10,000 + 1,000
= 11,000
VE = 3,000 + (3,000 x 10%)
= 3,000 + 300
= 3,300
Saving = 11,000 – 9,966.67
= 1,033.33

Task 1.2.

Ato Getachew
Budget performance report
December

Description Budget Actual Variance

amount amount
Income
Salary 10,000 10,000 0
Expenses
Variable expenses 3,000 2,400 +600
Fixed expenses 6,666.67 6,666.67
Total expenses 9,666.67 9,066.67
Saving 333.33 933.33
Total saving & expense 10.000 10,000
Budget surplus ------------ ------------------ ----------------- --- +600

Actual Variable Expense = 3,000 x 80%

= 2,400
Saving = 333.33 + 600
= 933.33

2
Prepared by Ephrem M.
Task 1.3. Reasons for budget variance include:-

 Decrease in price of commodities.

 Decrease in number of commodities consumed.
 Decrease in number of family member.

PROJECT TWO
Suppose ABC Company is VAT register Company. During the year 2011 the company earned birr 3.5
million from sales VAT inclusive. The company purchased materials and imported at a cost of birr
500,000 before VAT. During the year, the company paid birr 35,000 for custom duty and excise tax of
20,000. In addition the company incurred other expenses of birr 1,000,000. The company also charged
profit tax of 30%.

Task 2.1.Calculate direct tax and indirect tax liability for the year.
Task 2.2.What types of documents are used to assess tax liability?

ANSWER
Task 2.1. Direct tax liability

= profit tax
= 463,043.48

Calculate profit tax

Sales --------------------------------------3,500,000
Less: VAT (3,500,000 x 15/115) – (456,521.74)
Sales before VAT ------------------- 3,043,478.26
Less: cost ----------------------------- (500,000)
Gross profit ------------------------- 2,543,478.26
Less: other expense -------------- (1,000,000)
Profit before tax ------------------ 1,543,478.26
Profit tax = 1,543,478.26 x 30%
= 463,043.48

Indirect tax liability

= VAT liability + custom duty + excise tax

= 381,521.74 + 35,000 + 20,000
= 436,521.74
Calculate VAT liability
VAT Liability = output VAT – input VAT
= (3,500,000 x 15/115) – (500,000 x 15/100)
= 456,521.74 – 75,000

3
Prepared by Ephrem M.
 = 381,521.74

Task 2.2. Documents for tax assessment include:-

 Purchase invoices
 Sales invoices
 Income statement
 Payroll sheet

PROJECT THREE
Assume your investment requires total capital of birr 120,000 of which you have birr 30,000 in your
hand and borrowed the remaining amount. In order to fulfill your financial requirement, you have two
alternatives.

Alternative 1: you will borrow the deficit of capital from bank at an interest rate of 12% for two years
with yearly equal installments payments and the bank charged birr. 2,400 for service charge and 2,000
account fee for each year.

Alternative 2: you will borrow the deficit from bank at an interest rate of 13% for three years with
yearly equal installment payments and the bank charged for service birr. 1,000 for each year.

Instruction: perform the following tasks.

Task 3.1.Which alternative is best?
Task 3.2.What is the rate of return on your investment for profit of 30,000?

ANSWERS
Task 3.1 Alternative 1
Loan = 120,000 – 30,000 = 90,000
Yearly equal installment payment = 90,000 = 45,000
2

Year 1

I = PRT = 90,000 x 12% x 1 = 10,800

Year 2

I = PRT = 45,000 x 12% x 1 = 5,400

Total interest = 10,800 + 5,400 = 16,200
Service charge = 2,400 +2,400 + 4,800
Account fee (2,000 + 2,000) = 4,000
Total cost of loan = 25,000

Alterative 2
Loan = 12,000 – 30,000 = 90,000
Yearly equal pyts = 90,000 = 30,000

4
Prepared by Ephrem M.
 3years

Year 1

I = PRT = 90,000 x 13% x 1 = 11,700

Outstanding balance = 90,000 – 30,000 = 60,000

Year 2

I = PRT = 60,000 x 113% x 1 = 7,800

Outstanding balance = 60,000 – 30,000 = 30,000

Year 3

I = PRT = 30,000 x 13% x 1 = 3,900

Total interest = 11,700 + 7,800 + 3,900 = 23,400
Service charge (1,000 + 1,000 + 1,000) = 3,000
Total cost of loan = 26,400

Therefore, Alternative 1 is best, because the total cost of loan for Alternative 1 is less than that of
Alternative 2.

Task 3.2.

Rate of return = profit x 100

Capital
= 30,000 x 100
120,000
= 25%

PROJECT FOUR
Unit of competency covered

1. Work effectively in financial service sector.

2. Develop understanding of Ethiopian financial market.
3. Process customer account.
4. Process customer transaction.

Assume you are an employee of commercial bank of Ethiopia which is first in achieving its goal in
Ethiopia according to the rules and regulations of the country which is related to financial institutions.

Task 4.1. Demonstrate at least four activities performed while you process basic financial
transactions.
Task 4.2. If your customer asks you as advice that he/she has birr 100,000 which will be idle for
the coming two years. The customer has the following option to deposit his/her money in your
bank.
a. Deposit with saving account.
b. Deposit with current account.
c. Deposit with fixed time deposit account.

5
Prepared by Ephrem M.
From the above three options which one is more benefit to the customer. Mention at least for reasons.

Task 4.3. Most of the time the company is using checking or demand accounts to operate their
cash in a bank. If your customer asks you what are the advantages and dis advantages of current
account over saving account? Demonstrate at least four advantages of current account.
Task 4.4. Demonstrate the possible services your bank provide to customer. Mention at least five.
Task 4.5. Demonstrate the role of NBE’s as a central bank of the country.

ANSWERS
Task 4.1. Activities performed include:-

 Providing customer service with respect professionalism.

 Providing information to customer in a timely manner.
 Processing customer transactions.
 Checking for accuracy and completeness of documents.
 Resolving customer complaints.

Task 4.2. Fixed time deposit account because:-

 Provides higher interest rate.

 Money kept in this account is used for future cash requirements.
 The customer is sure of return (interest) from saved money.

Task 4.3. Advantages of current account.

1. Mainly opened by business persons to handle large transactions.

2. Business person can withdraw money without restriction.
3. It helps to make direct payment by writing checks.
4. Provide overdraft facility.
5. No-need to carry cash in bulk amount.

Disadvantages of current account.

1. Current account generally do not provide interest rate.

2. Current account requires service charge payment.
3. It does not promote saving habits.
4. It needs higher minimum balance to be maintained as compared to saving account.

Task 4.4. Services bank provides include:-

 Money transfer
 Accepting deposits
 Facilitate trade activities
 Providing credit facility
 Provide foreign currency exchange service
 Pay payroll for organization.

6
Prepared by Ephrem M.
Task 4.5. Role of NBE include:-

 Regulating banks and non-bank financial institutions.

 Issuing money.
 Establishing monetary policy.
 Fixing and controlling foreign currency exchange rate.

PROJECT FIVE
Suppose ABC company engaged in providing accountancy and training services to its customers. Assume
you are an audit supervisor in your department. Your investigation shows that last year’s work
performance is better than current year’s performance and calls in a meeting for the next fiscal budget.

Task 5.1. As team supervisor demonstrate your role in the meeting?

Task 5.2. What equipments and methods are used to communicate the employee for the meeting?

ANSWERS
Task 5.1. My role in meeting include:-

1. Preparing agenda for meeting.

2. Coordinating and facilitating meeting.
3. Making use meeting start and end on time.
4. Taking minute of meeting.

Task 5.2. Equipments & methods for communication include:-

 Telephone
 E-mail
 Memo
 Face to face
 Fax
 Etc.

7
Prepared by Ephrem M.