CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
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.
1.2 PROBLEM OF THE STATEMENT
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 unfavorably 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.
a. Inflationary pressures are incorporated in budgeting decision.
b. This is no flexibility in the preparation and implementation of budgets in order to contain changes in volume of activities or other variables.
c. To de-emphasis the under reliance on historical cost accounting be it presents a worry picture of the state of airs in on inflationary environment as a result of the decline in the purchasing power of money during inflation.
d. 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 one demand 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 aect budgeting decision in Binez Hotel Ltd Aba. Hi: Increased in the general price level aect 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.