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Assignment-2
Management Accounting
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Budgeting is the decision of long term investments, which mainly focuses upon the
acquisition or improvement on fixed assets. The importance of capital budgeting is only due
to the benefits of long term assets stretched to many long number of years in the future. It is a
tool of analysis which Mainly focuses on the quality of earning pattern of the fixed assets.

It is a decision of capital expenditure or long term commitment of funds on the fixed assets.




1.c 
 The study of capital budgeting on capital
expenditure helps in avoiding over-capitalisation and under- capitalisation. The
long term investment normally demands heavy volume of investment which is
met by the firm either through external or internal sources of financing. Hence the
amount of capital raised by the firm should neither be greater nor lesser than the
investment. 

2.c G 
 The amount invested requires longer gestation to
recover. A longer gestation period relates to a futuristic outlook of expected
recovery of the investment. The future unlike the present is uncertain. A longer
gestation period in the future leads to greater risks involved.

3.c u 
  The profitability of the
enterprise mainly depends on the proper planning of the capital expenditure.

4.c £  
 Capital invested cannot be reversed. A poor
investment decisions will require the firm either to keep it as idle in the form of
investment, or to unnecessarily meet fixed commitments charge of the capital
which is excessively raised more than the requirement.

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c Budget deals with future periods and therefore depends upon forecasts. Estimates and
forecasts can never be accurate.

c It tend to bring rigidity in control. Revision must be made in time in the light of
changing conditions.

c A budgetary system cannot be successful unless it is understood and supported by the

managers and subordinates.

c Budgeting is merely a tool of management and not a substitute for management. It

just helps management in carrying out the decisions.

c There should be continuous evaluation of the actual performance. Otherwise

budgeting will hide in efficiencies.

c rreparation of budget under inflationary conditions and changing government policies

is really difficult. Thus the accurate position of the business cannot be estimated.