Need For Budgeting, Budgeting Techniques And Limitations

Budgeting Techniques

Task 1

Write a 400-word introduction on the need for budgeting, the process for preparing budgets and their limitations.

Task 2

Prepare the following documents for the first six (6) months of the hotel’s operation:

A cash budget

A budgeted income statement

A budgeted statement of financial position

Task 3

Calculate the payback period using both the payback method (8 marks) and the discounted payback method (12 marks), as well as the NPV of the project (15 marks), assuming the following:

A cost of capital of 7%, using four decimal points on the discount factor;

Net cash flow will grow 3% on a year basis compared to previous year; and

John hopes to sell the hotel at the end (October 1) of the tenth year for £3,200,000.

This Report is intended to analyze the investment proposal to invest in the hotel industry. (Donovan, 2006)To analyze, initially budgeting techniques such as preparation of cash budget, budgeted income statement and budgeted balance sheet.

A budget is an arrangement for your future pay and uses that you can use as a rule for spending and sparing. Albeit numerous Americans as of now utilize a budget to arrange their spending, the greater part of Americans likewise routinely spends more than they can bear. The way to spending inside of your methods is to know your costs and to spend short of what you make. A decent month to month budget can guarantee you pay your bills on time, have assets to cover startling crises, and achieve your money related objectives.

The greater part of the data you need is as of now readily available. To make or revamp your budget, take the basic steps sketched out underneath to get an unmistakable photo of your month to month funds. (Hammonds, 2006)You can likewise utilize our free internet budgeting number crunchers underneath to budget for certain particular buys or occasions. (Hammonds, 2006)

The cash budget contains a separation of the anticipated sources and employments of cash in a future period. This budget is utilized to determine whether organization operations and different exercises will give an adequate measure of cash to meet anticipated cash prerequisites. If not, administration should discover extra subsidizing sources.

The inputs to the cash budget originate from a few different budgets. The aftereffects of the cash budget are utilized as a part of the financing budget, which orders ventures, obligation, and both premium wage and premium cost.

Cash Budget

The cash budget is contained two fundamental regions, which are Sources of Cash and Uses of Cash. The Sources of Cash area contains the starting cash parity, and also cash receipts from cash deals, records of sales accumulations, and the offer of advantages. (Sinclair, 1934)The Uses of Cash area contains all arranged cash uses, which originates from the immediate materials budget, direct work budget, fabricating overhead budget, and offering and managerial cost budget. It might likewise contain details for altered resource buys and profits to shareholders.

The budgeted income statement is an important part of a business's financial planning process. The budgeted income statement, along with a budgeted balance sheet, can help a business determine if its plans are financially feasible. A business can develop and compare different budget projections to help in making decisions about which projects the business should pursue and how it can pay for them.

A budgeted balance sheet is a report that administration uses to anticipate the levels of advantages, liabilities, and value taking into account the budget for the present bookkeeping period. As such, the budgeted balance sheet demonstrates where the greater part of the records would be toward the end of a period if the genuine organization execution coordinated the budgeted gauges. Setting up this report is generally the last stride in finishing an expert budget arrangement. (Reilly & Brown, 1997)

Toward the end of every period, administration for the most part begins arranging an expert budget for the following period. The expert budget is comprised of a huge amount of littler budgets for deals, cash, offering costs, and general costs. These budgets are consolidated to make one major, thorough money related arrangement.

A budgeted balance sheet is a report that administration uses to anticipate the levels of advantages, liabilities, and value taking into account the budget for the present bookkeeping period. As such, the budgeted balance sheet demonstrates where the greater part of the records would be toward the end of a period if the genuine organization execution coordinated the budgeted gauges. Setting up this report is generally the last stride in finishing an expert budget arrangement.

Toward the end of every period, administration for the most part begins arranging an expert budget for the following period. The expert budget is comprised of a huge amount of littler budgets for deals, cash, offering costs, and general costs. These budgets are consolidated to make one major, thorough money related arrangement.

The budgeted income statement is an important part of a business's financial planning process. The budgeted income statement, along with a budgeted balance sheet, can help a business determine if its plans are financially feasible. A business can develop and compare different budget projections to help in making decisions about which projects the business should pursue and how it can pay for them.

The cash budget contains a separation of the anticipated sources and employments of cash in a future period. This budget is utilized to determine whether organization operations and different exercises will give an adequate measure of cash to meet anticipated cash prerequisites. If not, administration should discover extra subsidizing sources.

The inputs to the cash budget originate from a few different budgets. The aftereffects of the cash budget are utilized as a part of the financing budget, which orders ventures, obligation, and both premium wage and premium cost.

The cash budget is contained two fundamental regions, which are Sources of Cash and Uses of Cash. The Sources of Cash area contains the starting cash parity, and also cash receipts from cash deals, records of sales accumulations, and the offer of advantages. The Uses of Cash area contains all arranged cash uses, which originates from the immediate materials budget, direct work budget, fabricating overhead budget, and offering and managerial cost budget. It might likewise contain details for altered resource buys and profits to shareholders.

Since the Net Present Value is positive, an investment is recommended.

As per the above analysis, the payback period would be 1.4 years thus an investment is recommended.

As per the above analysis, the discounted payback period would be 2.4 years thus an investment is recommended.

References

Donovan, S. (2006). Budgeting. Minneapolis: Lerner Publications Co.

Elton, E., & Gruber, M. (1995). Modern portfolio theory and investment analysis. New York: Wiley.

Hammonds, H. (2006). Budgeting. North Mankato, MN: Smart Apple.

Prime, J. (1967). Investment analysis. Englewood Cliffs, N.J.: Prentice-Hall.

Reilly, F., & Brown, K. (1997). Investment analysis and portfolio management. Fort Worth, Tex.: Dryden Press.

Sinclair, P. (1934). Budgeting. New York: Ronald Press Co.

Weaver, D. (1971). Investment analysis. London: Longman [for] the Society of Investment Analysts.

Williams, E., & Findlay, M. (1974). Investment analysis. Englewood Cliffs, N.J.: Prentice-Hall.

Wiseman, B. (2010). Budgeting. New York, NY: Weigl Publishers.