A local government reports the following for the year: Opening cash balance $\N5,000,000$. Receipts - tax revenue $\N12,000,000$, grants $\N3,000,000$, loan proceeds $\N2,000,000$. Expenditures - operating expenses $\N8,000,000$, capital outlay $\N5,000,000$, debt service $\N1,500,000$. At year‑end there is an unspent appropriation of $\N500,000$ in the capital outlay fund which will be transferred to the operating fund. The council also wishes to set aside a contingency reserve equal to 5 % of total receipts. Compute (a) the closing cash balance before the transfer and reserve, (b) the cash balance after the transfer and after setting aside the reserve, and (c) the maximum amount that can be borrowed if the council wants to retain a minimum cash balance of $\N2,000,000$ at year‑end.

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(a) \N7,500,000; (b) after transfer still \N7,500,000, after reserve \N6,650,000; (c) borrowing capacity = \N4,650,000.

Neco Model Questions Vol1 2019 Financial Accounting Question 33

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