You have been approached by the Managing Director of a small company that has recently been set up. The company is hoping to obtain a significant amount of bank finance to support its activities and it has been asked to supply various documentation as part of its funding application. The Managing Director has provided all the required information except that of the forthcoming year. He has explained to you that he really doesnt understand why this has been requested and further confesses that he is unsure about how exactly a budget is prepared.

Required:

i. State and explain THREE (3) purposes of budgeting. (6 marks)

ii. State the stages in the budgeting process. (6 marks)

iii. Differentiate between the master budget and the functional budget and identify TWO (2) advantages and ONE (1) disadvantage associated with these budgets