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CA Intermediate · Cost and Management Accounting · Budgets and Budgetary Control

Which statement about a master budget is correct?

A master budget consolidates all functional budgets into budgeted financial statements, namely a budgeted profit and loss account and balance sheet. It is prepared in advance for the whole organisation and is not flexed automatically for actual activity.

  1. AIt is prepared only for the production department and excludes the budgeted financial statements
  2. BIt consolidates the functional budgets into a budgeted profit and loss account and balance sheetCorrect
  3. CIt changes automatically with the actual level of activity achieved
  4. DIt is prepared after the period ends, using actual results

Explanation

The master budget is the summary budget that consolidates all functional budgets and normally takes the form of a budgeted profit and loss account and balance sheet. It is a fixed plan prepared before the period, so it does not flex automatically with actual activity.

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