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Algoma University – CESD 2996                (22Fall)

Assignment #2

Due Date: November 14, 2022

*Please submit the assignment electronically to the folder location on the Moodle course site by the due date. Include your name and student number on the submission.

Complete the assignment by first reading the Case Situation and then answer the Case Questions that follow. Your submission will include the answers to the Case Questions. Please use Word, PDF, or Excel format when submitting your assignment.

Note this is a NEW Assignment was NOT used before in a prior class.

“United Support – Budgeting for the Not For Profit”

(Case Situation)

The name of this not for profit organization is United Support. They are a not for profit organization that has been in existence for 50 years. The organization operates in various cities throughout the province of Ontario providing assistance to families in need as a result of emergencies and disasters, and to the elderly that live alone and require assistance.

The organization has been experiencing financial difficulty as the federal and provincial government reduced their annual funding last year and all indications confirm the reduced government funding will continue. Last year, the organization had a shortfall whereby expenses exceeded revenue/government funding by $500,000. Fortunately, the United Support had cash reserves to cover this shortfall, however, the organization is quite aware that they cannot continue to cover shortfalls of this size in the future.

You have been recently hired by the organization as the Budget Officer for the head office in Toronto, Ontario. A main task of the job is that you are required to prepare the budget for the next fiscal year ending December 31, 2023, highlight applicable concerns and recommend financial strategies that would improve the organization’s financial condition.

The following budget items need to be considered when you prepare the budget for the year of 2023:

  • The budget year starts in January and ends in December. The organization likes to see the revenue and expenses for each month.
  • Funding is received from the provincial and federal government. The province is budgeted to provide $12 million in 2023 while the federal government is to provide $6 million. The provincial funding is received on the first day of each month beginning with January 1. Each month receives an equal amount of provincial funding. The federal government funding is received quarterly on the first day of each quarter beginning with January 1. Thus, the funding received on January 1 is for the months of January, February, and March.
  • At the end of Fiscal 2022, the organization is expected to have an ending cash balance of $200,000 after liquidating a cash investment to cover the shortfall.
  • The budget is to be set up on a monthly basis. At the end of the 12 months, there is a total column that consolidates and total sall line items to a yearly summary for 2023.
  • The organization receives rental revenue revenue of $10,000 per month from a tenant (another not for profit organization) that rents space in their buildings. The rent is received on the first day of the month.
  • In the 4th month, the organization intends to sell surplus equipment for $100,000 and payment is to be received in the same month of the sale.
  • In the 9thmonth, the organization needs to update their Information Technology database.  They plan to purchase fixed assets in the amount of $100,000 during the month and need to pay for the expenses in the same month.
  • The monthly operating expenses are forecasted as follows:from January to May – $1,500,000 in each month, June to August – $2,000,000 in each month, and September to December – $1,600,000 in each month.
  • Depreciation expense is $10,000 per month.

Case Questions

(Answer each question independent of each other)

  1. Complete the monthly budget for each of the 12 months in 2023given the above mentioned budget items. Then consolidate into a yearly summary.For each month, show all proceeds flowing into the organization, the expenses, and net difference for each month. The cash/net profit position at the end of each month needs to be determined.
  2. United Support may be able to rent additional unused space in their buildings that could generate an additional $20,000 in monthly rental income. Provide your recommendation if this new rental income should be pursued and why.
  3. United Support has 4 operational departments and each department has their own manager. Presently, the accounting department prepares the budget and hands it down to the departments to follow. The department managers are upset as their input is never requested and they feel they know their department better than the accounting team. Provide your recommendation on how you would respond to the department managers concern.
  4. Once the budget is prepared and year 2023 commences, explain how you propose to monitor the budget each month against the actual results for each month.
  5. Often the department managers want to purchase an item that was not in the original budget. The organization has asked you for your recommendation on how these requests should be treated in the future.
  6. The federal government has advised United Support that their funding can be received monthly if they receive a request from the organization specifying a valid reason for the change. Explain if it would be beneficial for the organization to receive the federal funding monthly and if so, what would be your valid reason.
  7. The organization recognizes the expenses in the income statement when they are incurred. Explain if this is a form of accrual accounting or the recognition of expenses on a cash basis.
  8. If the organization purchased computer equipment on July 15 for $100,000 and the sales agreement provided the buyer 60 days to pay, what month would the cash payment be made. Where in the financial statements is this $100,000 tracked, also specify the account that is used.
  9. Explain how the $10,000 depreciation expense impacts the organization’s cash flow.
  10. Explain if the budget is showing a net operating profit or loss for the year. The objective for the organization is to have a 10% of total revenues for the year as the net operating profit. If this is not budgeted to happen, please provide recommendations to the board on how the net operating profit can be achieved.