50 Questions
What does CAPEX primarily consist of?
Acquisition of movable and non-movable fixed assets and execution of capital projects
What should each budget base be based on?
Budget drivers
What should the annual budget identify?
Each capital activity in sufficient detail
When should the process of preparing the annual budget commence?
First week of August
Who is responsible for presenting their budget to the Senior Management Team?
Departmental Heads
What should Budget Centre Managers/Head of Departments ensure they develop and maintain?
Their financial competency
What should the annual budget include?
Projected cash flows and net profit projections by month
What is the latest deadline for completing the budget process?
Last week of November
Who is authorized to grant exceptions to the application of the NNPC Limited policy?
The GCEO
What is the primary objective of the Accounts Payable policy?
To maximize payment accuracy and control
What is the standard payment term for suppliers as set by Management?
Net 45
Who must approve a proposal to adopt a payment term other than 'Net 45'?
The CFO of NNPC Limited
What is included in the scope of the Accounts Payable policy?
Invoice processing, advance payment to contractors, and accounts payable reconciliation and reporting
What is the purpose of the approved strategic plan and DOA/DFA guidelines?
To serve as an integral part of the policy document
What is the main goal of the Accounts Payable policy in relation to cash flow forecasts?
To mitigate potential funding gaps
Who is responsible for recommending the approval of a payment term other than 'Net 45'?
The Treasurer of NNPC Limited
What guides the shared service arrangement between Service Providers and Recipients?
SLAs
How should corporate overhead expenditure be allocated to business units?
At no mark-up or discounts
What is the purpose of the Overhead Cost Allocation Plan (CAP)?
All of the above
What should the Service Provider include with the invoice/debit notes sent to the Service Recipient?
Monthly service utilization schedule or transaction statement summary
Who is responsible for developing or updating the Overhead Cost Allocation Plan (CAP)?
Budget and Planning Department
How often should common overheads be allocated?
Quarterly
When is the Overhead Cost Allocation Plan (CAP) reviewed?
Annually
What is the basis for billing cost recovery expenses?
Annual rate established in the approved cost allocation plan
What is included in the Overhead Cost Allocation Plan (CAP)?
A brief description of the service, a list of central service costs, and the methodology for allocation
Who approves the quarterly billing of shared overhead expenses?
Head of Finance and Accounts
Why is it essential to allocate overhead costs to business units?
To ensure competitive neutrality
How should direct expenses incurred by one business unit on behalf of another be charged?
Through the appropriate intercompany account
What is included in the summary schedule of the Overhead Cost Allocation Plan (CAP)?
Both the allocations of each service to the specific benefiting business units and the total allocations
What should the Service Recipient ensure upon receipt of invoice/debit note and other support documents?
Prompt payment in line with the payment timelines agreed in the SLA
What is the purpose of debit notes issued by the Finance Department?
To allocate common overheads to the relevant BUs
What is the policy on cost recovery by the Service Provider?
Full cost recovery unless the SLA provides otherwise
What is the primary objective of recording vendor/supplier invoices as accounts payable?
To aid in proper planning and cash flow forecasting
What is required to be performed biennially by the Governance, Risk and Compliance (GRC)?
Review of the execution of this Policy for compliance
Who is authorized to grant exceptions to the application of this policy?
The GCEO
What is the purpose of the Trade Credit and Management Policy?
To establish guidelines for granting trade credits and managing accounts receivable
What is one of the objectives of the Trade Credit and Management Policy?
To minimize the cost of investment in receivables
What documents are required to support vendor/supplier invoices?
Purchase order/service order, goods received note, job completion certificate, and contract agreement/letter of intent
How often should vendor/supplier invoices be recorded as accounts payable?
On or before the fifth working day of the following month
What is this policy an integral part of?
NNPC Limited Finance and Accounts Policy Manual
Inventory items shall be transferred into the store from the receiving area only after they have been captured on the inventory register and secured against tampering.
True
The store officer is responsible for proper update of the inventory register.
True
Inventory items can be stored in any available space in the warehouse.
False
All inventory requests from user departments must be approved by the relevant HOD or Project Manager.
True
Inventory received into the store shall not be identified with inventory identification tags.
False
The user department shall not be involved in identifying, inspecting, and coding new inventory items for stacking.
False
Inventory including petroleum products shall not be properly preserved against conditions that cause deterioration in quality.
False
The Store Officer shall not perform routine checks frequently for expiration of materials having relatively short life.
False
Inventory shall not be stored in a way that complies with warehouse rules.
False
Only approved MIR shall be processed by the Store Officer.
True
Study Notes
Capital Expenditure (CAPEX) and Operational Expenditure (OPEX)
- CAPEX consists of acquisition of movable and non-movable fixed assets, and execution of capital projects.
- OPEX primarily consists of all operational expenses for the day-to-day running of the business, including direct and indirect expenditures.
Budgeting
- Each budget base is based on the budget driver(s) driving such base.
- Each budget center/business unit/department is responsible for the budget.
- The annual budget should:
- Identify each capital activity in sufficient detail.
- Include reasonable information regarding personnel and estimated manpower costs.
- Include an estimate of expenditure by calendar month.
- Include projected cash flows and net profit projections by month.
- Be accompanied by other information necessary for an informed board decision.
Budget Preparation Process
- The process of preparing the annual budget should commence not later than the first week in August of the preceding year.
- The budget process should be completed by the last week in November every year.
- Each Departmental Head is responsible for preparing the budget for their respective budget center.
Accounts Payable
- The policy is to pay suppliers within the company standard payment term (currently within 45 days from the date of receipt of a valid invoice).
- Any proposal to adopt a payment term other than "Net 45" must be approved by the Chief Financial Officer (CFO) or the Managing Director.
- All shared service arrangements shall be guided by Service Level Agreements (SLAs) duly executed by participating entities.
Overhead Cost Allocation
- Overhead costs consist of the costs of central services and other support functions shared across business units within the Group.
- The cost allocation process shall be guided by an Overhead Cost Allocation Plan (CAP).
- The CAP should contain:
- A brief description of the service.
- A list of central service costs across support functions.
- The methodology or basis for allocation/charge-out rate.
- A summary schedule showing the allocation of each service to the specific benefiting business units.
Trade Credit and Accounts Receivable
- The purpose of the policy is to establish guidelines for trade credits granting and the management of accounts receivable through accurate and timely billing of customers.
- The policy is designed to ensure:
- Evaluation of the creditworthiness of customers before granting trade credit facilities.
- Formulation of credit terms to maximize sales revenue and maintain a reasonably high receivable turnover ratio.
- Minimization of the cost of investment in receivables.
- Minimization of possible bad debt losses.
- Minimization of the cost of credit collection.
Debt Collection and Recovery
- The following guidelines shall apply in the recovery of trade debts:
- Finance and Accounts shall be responsible for overseeing the debt management functions.
- Outstanding debts will be reviewed on a monthly basis.
- Actions that may be undertaken by Finance and Accounts include:
- Issuance of regular reminders to debt customers.
- Personal contacts with debt customers.
- Suspension of further business transactions with debt customers until outstanding positions are cleared.
- Referral of debt collection responsibility to debt recovery agents.
Asset Management
- The verification exercise shall be performed on a bi-annual basis.
- The verification shall involve confirming the existence, location, and condition of each asset, and comparing them against the fixed asset register.
- An Asset Verification Team (AVT) shall be responsible for conducting the exercise.
- The PP&E Unit shall prepare a detailed Fixed Asset Verification and Reconciliation Report.
- An item of PP&E shall be deemed to be impaired if it meets certain conditions.
Asset Transfer
- The transfer of assets between parties with similar company codes shall be regarded as an intra-company transfer.
- The transfer of assets between parties with dissimilar company codes shall be regarded as an inter-company transfer.
- The transfer of an asset from an entity to another shall be initiated using an asset transfer form.
- Inventory shall be transferred into the store from the receiving area only after they have been captured on the inventory register and secured against tampering.
This quiz covers the concepts of CAPEX and OPEX in business finance, including their definitions, differences, and applications.
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