FMA - Budgeting & Budgetary control

budget (Photo credit: 401(K) 2013)

Budgeting& Budgetary Control

Meaning of Budget:

                     A budget is a plan expressed in quantitative, usually monetary terms, covering a specific period of time, usually one year. In other words, a budget is a systematic plan for the utilization of manpower and material resources.

                     In a business organization a budget represents an estimate of future costs and revenues.

Budgets may be divided into two basic classes;

1.Capital Budgets and 2.Operating Budgets.

                    Capital budgets are directed towards proposed expenditures for new projects and often require special financing.

                     The operating budgets are directed towards achieving short-term operational goals of the organization, for instance, production or profit goals in a business firm. Operating budgets may be sub-divided into various departmental or functional budgets.

Budgeting:

                     Budgeting refers to the process of preparing the budget. It involves a detailed study of business environment clearly grasping the management objectives, the available resources of the enterprise and capacity of the enterprise.

Budgetary control:

                     Budgetary control is the process of preparation of budgets for various activities and comparing the budgeted figures for arriving at deviations if any, which are to be eliminated in future.

                    No system .of planning can be successful without having an effective and efficient system of control. Budgeting is closely connected with control. The exercise of control in the organization with the help of budgets is known as budgetary control.

The process of budgetary control includes

(i) preparation of various budgets

(ii) continuous comparison of actual performance with budgetary performance and

(iii) revision of budgets in the light of changed circumstances.

                    A system of budgetary control should not become rigid. There should be enough scope for flexibility to provide for individual initiative and drive. Budgetary control is an important device for making the organization more efficient on all fronts. It is an important tool for controlling costs and achieving the overall objectives.

Financial Management Accounting 1.2

Assets (Photo credit: LendingMemo)

STUDYMATERIAL - Depreciation – methods

MEANING:

             Depreciation may be defined as the permanent decrease in the value of an asset through wear and tear in the use or the passage of time.

              Depreciation is an expense or loss involved in using machinery, motor vehicles, tools and other fixed assets in the process of production and has to be provided for; this is done by estimating the amount to be written off the value of  particular aset each year and setting this amount against the profits for that year.

      Institute of chartered accountants of India defines, “ a measure  of the wearing out, consumption o other loss of a value of a depreciable asset arising from use, afflux ion of time or obsolescence through technology ad market changes.

      Depreciation is allocated so as to charge a fair proportion of the depreciable amount in each accounting  period during the expected useful life of the asset.

     Deprciation includes amortisation of assets whose useful life is predetermined.”

CAUSES OF DEPRECIATION :

1.     Physical deterioration:

It is caused mainly from wear and tear when the asset is in use and from erosion, rust, rot and decay from being exposed to wind, rain, sun and other elements of nature.

Financial Management & Accounting Unit 1.1

STUDY MATERIAL - THEORY

Accounting – Journal , Ledger, Trial Balance, Final Accounts

Book-Keeping:

“Book-Keeping is the art of recording business transactions in a systematic manner”.

Advantages of Book-Keeping:

1.           Reliable Record.

2.           Calculation of profit or loss

3.           Calculation of Dues.

4.           Control over borrowings.

5.           Control over assets.

6.           Ascertainment of the growth of business.

7.           Ascertainment of the financial position.

8.           Identifying Do’s and Don’ts.

9.           Fixing the selling price.

10.       Taxation.

Definition of Accounting:

“The art of recording, classifying and summarising in a significant manner in terms of money transactions and events which in part, at least of a financial character and interpreting the results thereof”.

Sample Size Calculation, Power Calculation, Random Allocation, Chi Square Test, Correlation and Regression, ANOVA, Wilcoxon test

Group Work on Sample Size Calculation

1.      The mean birth weight (SD) of newborn is observed to be 2.25(0.4) kg in pregnant women belonging to low socioeconomic group. A study is to be carried out to determine whether nutritional supplementation would increase the birth weight of newborn. It is planned to include two groups of pregnant woman - one without supplementation (control group) and the other with supplementation (test group). Calculate the size of each group.

2.      The cure rate of a drug in a disease is 20%. It is claimed yoga is better than the drug and a trial is to be conducted find out the truth. It is decided that a even 10% increase in cure rate would be clinically important. The alpha and beta were set at 0.1 and 0.1. The results will be analysed using Chi Square test. How many patients would be required for the trial?

3.      The mean(SD) hospital stay of patients after a conventional surgical procedure (CP) is 12.3(4.8) days. A modified procedure(MP) is to be tried to reduce the stay. Two groups of patients will be undergoing either CP or MP. Their hospital stay will be compared using unpaired t test at p<0.05 with power of 90%. The minimum important difference is expected to be 3.Calculate the sample size for each group.