BUDGETING IN ALL INFLATIONARY ENVIRONMENT

(A CASE STUDY OF BINEZ HOTELS LTD ABA)

ABSTRACT

This topic was designed to highlight the importance and prominence budgeting in a very dynamic economy like ours as well as the difficulty to forecast the rate of inflation with accuracy and the problem posed by changing price level and how these problems are addressed in making budgeting decisions.

Highlighting the advantages as well as he problem associated with budgeting will enhance the managers skill and ability in the preparation and implementation of budgets. They will also see the correlation between budgeting and success as well as appreciate it students on the dynamics, complexities and mechanics of today’s business decision making. a part from making some contribution to knowledge, the study would also add to the existing. Finally, the study is significant as it is in partial fulfilment of the polytechnics requirement for the award of Higher National Diploma (HND) in Accountancy. This study report is five chapters. The first chapter introduces the topic, present the nature of the problem, the objective of the study significant of the study, the significant of the study the scope of the study as well as statement of hypothesis. The chapter also given a brief history of the company and the aware ship structure. Hence the first chapter serves as a prelude to the main study.

The second chapter examines the work of the other people on the study. Review is divided into sections top cover areas like of meaning and purposes of budget  and the techniques of the data treatment will be explained and the limitation to which we are subjected in the data treatment. The data collected will be analyzed and discussed so as to develop our findings in the context of the purpose for which the study was conducted chapter four.

Here, the statement of fact in connection with the study will be made. The finding of the study will determine whether the hypothesis were true or not.

Finally, in chapter five, statement of findings is made, conclusion are draw remarks and recommendations based on the study are made.

CHAPTER ONE

• Introduction 1

1.1     Background statement                                         1

1.2     Nature of the problem                                          3

1.3     Statement of hypothesis                                                5

1.4     Objective of the study                                          6

1.5     Research question                                                          7

1.6     Significance of the study                                                8

1.7     Scope of the study                                                         9

1.7.1  Brief history of the company                               10

1.7.2  Ownership structure                                            11

1.8     Organisation of the study                                     11

1.9     Definition of terms                                               12

 

CHAPTER TWO

• Review of related literature                                 16

2.1     Introduction                                                         16

2.2     Meaning and purpose of budgeting                      21

2.3     Types of budgeting                                              23

2.3.1  The operating budget                                           23

2.3.2  The finance budget                                               26

2.4     Stamps in preparing budget                                 28

2.5     Techniques of budget                                           29

2.6     Meaning of inflation                                             31

2.7     Rates of inflation                                                  32

2.8     Types of inflation                                                          33

2.9     Pos and cons inflation                                          35

2.10   causes of inflation                                                          36

2.11   Control of inflation                                              39

2.12   How Binez Hotels Ltd, Aba take care of inflation in

their budgets.                                                                 40

2.13   Budget planning implementation and control in Binez Hotel Ltd. 41

2.14   Types of budget prepared in Binez hotel             42

2.15   Budget preparation implementation and control procedures in Binez Hotel Ltd.                                                                    43

2.16   Data presentation, interpretation and various analysis. 45

2.17   Summary                                                             45

 

CHAPTER THREE

• Research design and methodology 47

3.1     Research design                                                    47

3.2     Area of study                                                       48

3.3     Determination of sample size/population             48

3.4     Sample and sampling procedure                          49

35      Types of data used                                               49

CHAPTER FOUR 

• Data presentation and analysis 53

 

CHAPTER FIVE

• Findings, recommendation and conclusion 67
  • Introduction 67
  • Recommendations 69
  • Suggestions for further research 70
  • Summary/conclusion 71

Bibliography                                                        72

Appendix                                                                       77

 

 

 

CHAPTER ONE

INTRODUCTION

1.1     BACKGROUND STATEMENT

The concept of budgeting is as old man. In history, we learnt that the early man had to determine whatever he needed in advance before it eventually materialized. This very obvious in the present days in lives of individual, a state or a nation, as nation plans ahead in terms of revenue and disbursements within a specified period of time. Every establishment, be it public or private, finds it necessary to prepare budget and institutes budgetary control for the purpose of translating policies the best possible activities as well as financial control in order to achieve the best result. A budget had been defined as “a financial and /or quantitative statement prepared and approved prior to a defined period of time of the policy to be pursed during that period for the purpose of attaining a given objective. It may include income, expenditure and the employment of capital. The institute of cost of management accountants (ICMA) defines budgeting control as’ the et of departmental budgets relating the responsibilities of executives to the requirements of a policy and the continuous comparison of actual with budgeted results, either to serve by individual action the objective of that policy or to provide a firm basis for its revision. In a nutshell a budget is a permute which measures the actual achievement of people , artments, ministries, firms etc.

Statement for review and control purposes. These financial statement as a guide to chief executives had of parastatals etc. In the operation of the resources at their disposals.

However, in recent times, increases in the general level of prices has in no small way unlimited the numerous advantages of budgeting planning as well as increased the degree instability and uncertainly in the business environment. No rigid reliance on budgeting as a management tool to provide direction basis for performance appraisal and for profit measurement can be grossly misleading inflationary result in reduced profits. It can equally create a false sense of well being for a company. For instance, where a company makes holding gains by merely deliberately holding its stock and reselling at a much higher price when actual supervisor managerial ability has not been demonstrated nor has capacity utilization or sale volume increased. Also during inflation, the value of fixed assets are usually understated because the replacement or current cost of the assets are usually higher than their book values. This is turn understates the amount of deprecation charged for these assets and consequently overstate profit. The distribution of this Phony profit as dividends may result in capital depletion. This a negation of fundamental principle of income determination, which state that provision should be made to maintain the of existing capital intact.

Budgeting in an inflationary environment therefore requires considerable forecasting and predication of the economic, social political, and even legal trends in the business environment and their impact on both the centre economic factor in today’s activities of the particular business enterprise. As a recurring factor in business environment the need to recognize and incorporate inflationary pressure in budgeting decision is therefore very paramount.

 

• NATURE OF THE PROBLEMS

The dynamic complex, unstable and competitive environment under which Nigerian operates to day has made advance planning very crucial and infact a key factor for success. a business plan is usually actualized through the use of a budget. However, no matter how through and painstaking the preparation of a budget may be unforeseen fluctuations in general price level may cause unfavourable distributions or deviations between actual and budgeted activities.   

As a result of the dire need to plan effectively and keep pace with developments in the business environment, the following problems are addressed.

1. Inflationary pressures are incorporated in budgeting decision.
2. This is no flexibility in the preparation and implementation of budgets in order to contain changes in volume of activities or other variables.
3. To de-emphasis the under reliance on historical cost accounting be it presents a worry picture of the state of affairs in on inflationary environment as a result of the decline in the purchasing power of money during inflation.
4. Also the need to de-emphasis the use of budgets as the sole basis for performance evolution inspite of the deviations and fluctuations which price level increases or even decreases can create.

1.3     STATEMENT OF HYPOTHESIS

All scientific enquires are geared towards providing or disproving a phenomone or a preconceived notion about issues social. Scientific, economic or political. The particular issue to be examined and the objective of the inquiry often deman the formulation of certain hypothesis which would be validated or disproved through the scientific testing of the data generated from that enquiry. Hypothesis in this case refers to tentative statement of fact that is subject to empirical validation by treating.

The following are the hypothesis to be tested.

1. Ho: Increased in the general price level do not affect

budgeting decision in Binez Hotel Ltd Aba.

Hi:     Increased in the general price level affect

budgeting decision in Binez Hotel Ltd Aba.

2. Ho: A company cannot succeed without budgeting.

Hi:     A company can succeed without budgeting.

3. Ho: Variance between actual and budgeted revenue and

expenditure in Binez hotel are accounted for by inflation.

Hi:     Variance between actual and budgeted revenue and

expenditure in Binez hotel are accounted for by inflation.

 

1.4     OBJECTIVE OF THE STUDY

The use budgeting as on indispensable managerial tool in today’s business decision, has become very necessary as a result of the highly competitive and complex business environment under while business operate. The risk of just forging ahead without a concrete plan is enormous. Businessmen and investors fear leaving their fortunes to chance. To survive an remain profitable, a business must continually assess its strengths and weaknesses, its current position, where it is today where it wants to be tomorrow, the means of getting there well as the constraints that ill militate these goals and objective and how to contain them.

The objective of the research, which is conducted with particular reference to Binez Hotel Ltd Aba include the following:

1. To examine the procedure and techniques employed by the economy in budgeting decision.
2. To examine how the management of Binez Hotel copes with inflationary pressures in its periodic budgeting decisions.
3. To examine to problem posed by inflation in the economy generally and Binez Hotel Ltd in particular and how it is addressed.
4. To find out the possibility of the company to operate without budgeting its activities in today’s uncertain business environment.
5. The study will equally evaluate the soundness or otherwise of the budgeting procedures employed by Binez Hotel ltd Aba.

 

• RESEARCH QUESTION       

1. The what extent has procedure and technique employed by the company influenced its budgeting decision.
2. How to periodic budgeting decision copes inflationary pressure in Binez Hotel Ltd.
3. How to Binez operate without budgeting its activities.
4. To what extent has budgeting procedure by Binez Hotel evaluate its operations.

 

 

1.5     SIGNIFICANCE OF THE STUDY

          This topic was designed to highlighted the importance and prominence of budgeting in a very dynamic economy like ours as well as the difficulty to forecast the rate of inflation with accuracy and the problems posed by changing price levels and how those problem are addressed in making budgeting decisions.

Highlighting the advantages as well as the problems associated with budgeting will enhance the managers skill and ability in the  preparation and implementation of budgets. They will also see the correlation between budgeting and success as well as appreciate its difficulties during inflation.

The study is also intended to enrich students on the dynamics, complexities and mechanics of today’s business decision making. Apart from making some contribution to knowledge, the study would also add to the existing body of knowledge, and literature  in the subject area of budgeting finally the study is significant as it is in partial fulfilment of the Polytechnics requirements for the award of a Higher National Diploma (HND) in Accountancy.

 

1.7     SCOPE OF THE STUDY

The subject matter of the research budgeting in an inflationary environment is broad so that a very comprehensive and detailed analysis of its may not possible because of the limitations on its volumes as well as the constraints of time and money. In order to make the cost the result affordable and to be able to finish within the short time available, the study was restricted only to Binez Hotels Ltd Aba.

The finding from the research may be peculiar to the company under study only and may not have necessarily represented the situation or what is obtainable in similar comprises in the same or related industry. Therefore the result cannot be very confidently generalized but may indicate a picture. The result study examined the types of budgets and the types of budgetary. Preparation and procedures adopted by Binez Hotel Ltd Aba. The study equally elicited answers form questionnaires administered on how Binez Hotel addresses the problem of inflation in it budgeting decision.

Finally a comparative analysis of the budgeted and actual revenue and expenditure of the company of company for the period of 1997 – 2000 was also made.

1.7.1 BRIEF HISTORY OF THE COMPANY

What we now know as Binez Hotel ltd was formally called Binez Hotels and was incorporated a private limited liability company in 1997, with an authorized share capital of N3,000,000 with ordinary share of N1.00 each.

Following the advent of a new Binez Hotels the share capital was increased to N50,000,000 with an ordinary share of N1.00 each issued and fully paid in.

 

 

 

• OWNERSHIP STRUCTURE

The company is owned by Nze Dr C. O. Maduako with directors of which he is also one of them.  The directors are:

Nze (Dr) Maduako

Late joy Maduako

Bar Chimezic Ogiabo

Mr. Uchenna Maduako

Mr. Nnanna maduako

 

• ORGANISATION OF THE STUDY

This study report is in five chapter introduces the topic present the nature of the problem the objective of the study significance of the study the scope of study as well as statement of hypothesis. The chapter also gives a brief industry of the company and ownership structure. Hence this first chapter serves as a pretend to the main study.

The second chapter examines the work of other people on study review of related literature. This chapter is divided into section to conver area like meaning and purpose of budget and the techniques of budgeting, it also cover the meaning types and pros and constitution of inflation.

The third chapter deals with the methodology of research. In this chapter, the source of data and method of collection will be discussed analytical techniques of the data treatment will be explained and the limitation to which we are subjected to the data treatment. The data collected will be analyzed and discussed so as to develop our finding in the context of the purpose for which the study was conducted in chapter four.

Here he statement of fact in connection with the study will be made the finding of the study will determine whether the hypothesis were true or not.

Finally in chapter five statement of finding is made conclusion are draw remarks and recommendation based on the study are made.

 

• DEFINITION OF TERMS

In this research study, the following words terms or concepts are used either in a bread or restricted sense.    

 

1. BUDGET

This refers to a quantitative and financial expression of a future plan of action. The chaptered institute of management accountant s (CIMA) defined, it as a plan quantified in monetary term prepared and approved prior to defined period of term usually showing planned income to be generated and/or the expenditure incurred during that period and the capital to be employed to attain a given objective.

 

1. BUDGETING

This is the process of predicting the financial behaviour of a business enterprise over a specified period of time.                   

1. BUDGETING CONTROL

This has been defined as the establishment of department budgets relating the responsibilities of executive to the requirement of a policy, and the continuous comparison of actual with budgeted result, either top to secure by individual action the objective of that policy or to provide a firm basis for its revision in a nutshell budgetary control ensures that actual result are positively in accordance with the overall financial and policy objective of an establishment.

1. INFLATION

This refers to the rise in the general level of prices in the economy as a whole as distinct from a rise in the level of prices in a given sector of the economy in other words, inflation is a high and persistent rise in the general price level. But not all price increase are inflationary for example an increase in the price level, which is not remnant, cannot be regarded as inflationary. When the price level is rising very rapidly – hyper inflation or galloping inflation. When it is rising gently – creeping inflation.

1. EFFICIENCY

This simple means the accomplishment of desired objective with minimum resources or lost.    

 

 

1. EFFECTIVENESS

This term is defined as the degree success with which a give objective is accomplished.

1. HOLDING GAINS

Profit arising during inflationary periods as a result of just holding goods in stock and not from the or ordinary occurs of business.

1. VARIABLE

This refers to the difference between actual and budgeted activity or performance.    

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