Financial Concepts

Financial Concepts

Monthly accounts of a student (Feb 09) Receipts Op. Balance 1000 Recurring Income 000 Monthly Assistance (father) 9000 Funds for B-day (mother) 1000

Special assistance from Father per term 5000 Sale of Cricket Kit 3000 Loan from Canteenwala 2000 Collection on behalf of friend 4000

Total

25000

Payments Monthly Fixed Expenditure (hostel, mess, transport, mobile 9000 Monthly Variable Expenditure Hotelling, Movies 1000 Consumables 1000 Purchase of Flowers, Ring 2000 Birth day party 2000 Purchase of Hard Disk Loan to Friend Investment Return to Friend Closing Balance

Total

2000 1000 1000 3000 3000

25000

Personal Finance Structure Receipts Side

Opening Balance Receipt from Revenue sources – salary, sale Income from Assets Recurring Assistance Receipt from Capital Sources – Reduction in Asset – Sale of Assets Receipt from Loan Sources – Increase in Liability Capital Grant Received Extra-ordinary – increase in liability

Payment Side

Permanent (Fixed) Expenditu – consumption, maintenance Variable expenditure Interest paid/finance cost Donations Given Acquisition of New Properties – Increase in Asset Repayment of Loan –Reduction in liability Extra-ordinary – amounting to reduction in liability Closing Balance

Monthly accounts of a student (Feb 09) Receipts

Payments

Op. Balance 1000 Recurring Income 2000 Monthly Assistance (father) 9000

Funds for B-day (mother) 1000 Special assistance from Father per term 5000 Sale of Cricket Kit 3000 Loan from Canteenwala 2000 Collection on behalf of friend 4000

Total

27000

Monthly Fixed Expenditure (hostel, mess, transport, mobile 8000 Monthly Variable Expenditure Hotelling, Movies 500 Consumables 500 Purchase of Flowers, Ring 1000 Birth day party Purchase of Hard Disk Loan to Friend Investment Return to Friend Closing Balance

Total

2000 2000 1000 1000 3000 8000

27000

Improving personal finance Expenditure – Income = deficit Deficit creates charge on assets, leads to erosion of asset base and finally bankruptcy Way out of this ????? Only two ways out = increase income, reduce expenditure Income – Expenditure = surplus Surplus is one form of asset can be used to acquire other assets or to discharge liabilities Sustained surplus and its judicious investment in productive assets leads to wealth formation

Municipal Budgeting Municipal Finance Structure Receipts Side

Opening balance Tax Revenue Non Tax Revenue Revenue Grants Capital Receipts New Loans Capital Grants Extra – ordinary

Payment Side

Establishment O&M Administrative Loan Interest Capital Expenditure Loan Repayment Extra –ordinary Closing Balance

Municipal Budgeting BMP Finance 2002-03 Receipts Side

Expenditure Side

Rs. In Crores Opening balance Tax Revenue N Tax & Others Revenue Grants Sub total Capital Receipts New Loans Capital Grants Extra – ordinary Total

51.27 189.08 43.43 121.91 354.42 21.29 69.93 47.40 138.94 683.25

Establishment O & M , Other Loan Interest Sub- total Capital Expenditure Loan Repayment Extra –ordinary Closing Balance Total

128.62 82.36 32.16 243.14 260.96 60.59 83.32 35.25 683.25

Municipal Budgeting BMP Finance 2002-03 Rs. In Crores

Amount Available for Development Revenue Surplus Capital Receipts Loan Account Capital Grants Total Extra-ordinary a/c Reduction in OB Total

111.28 21.29 9.34 47.40 189.31 55.63 16.02 260.96

Amount Spent on Development Capital Expenditure 260.96 Thus large part of capital expenditure is achieved by diverting extra-ordinary receipt which is liability Opening Balance stands reduced Does not tell quality of capital expenditure

Municipal Budgeting BMP Finance 2003-04 Receipts Side

Tax Revenue N Tax & Others Revenue Grants Sub total Capital Receipts New Loans Capital Grants Extra – ordinary Total Op. balance (40.98) Grand Total (715.06)

Payments Side

201.17 61.98 72.54 335.69 23.18 147.50 24.13 143.58 674.08 35.25 709.33

Rs. In Crores

Establishment 133.64 O & M , Other 122.20 Loan Interest 31.13 Sub- total 286.97 Capital Expenditure 263.10 Loan Repayment 47.77 Sub-total 310.87 Extra –ordinary 74.52 Total 672.36 Cl. Balance (42.70) 36.97 Grand Total(715.06) 709.33

Municipal Budgeting BMP Finance 2003-04 Rs. In Crores

Amount Available for Development Revenue Surplus Capital Receipts Loan Account Capital Grants Total Extra-ordinary a/c

48.72 23.18 147.50 24.13 243.53 19.57

Total

263.10

Amount Spent on Development Capital Expenditure 263.10 Thus large part of capital expenditure is achieved by increase in loan liability Opening Balance stands increased nominally Does not tell quality of capital expenditure

Improving Municipal Finance Higher Development Expenditure

Requires

Higher Revenue Surplus

THROUGH

D P E N D S

Increase in Loans & Other Liabilities

Decrease in Revenue Surplus

Increase in Own Revenue Income

Decreas e in Revenue Expenditure

Financial Concepts Thank You