capital budgeting

Views:
 
Category: Education
     
 

Presentation Description

No description available.

Comments

Presentation Transcript

CAPITAL BUDGETING:

“Capital budgeting is the process of making investment decisions in capital expenditure. It is an expenditure the benefits of which are expected to be received over period of time exceeding one year”. CAPITAL BUDGETING

CAPITAL EXPENDITURE MEANING :

CAPITAL EXPENDITURE MEANING Capital Expenditure is that the expenditure is incurred at one point of time whereas benefits of the expenditure are realized at different points of time in future. Capital Expenditure is an expenditure incurred for acquiring or improving the fixed assets, the benefits of which are expected to be received over a number of years in future.

Example:

Example Cost of acquisition of permanent assets as land and building, plant and machinery, etc. Cost of addition, expansion, improvement or alteration in the fixed assets. Cost of replacement of permanent asset Research and development project cost, etc.

Slide 4:

Capital expenditure involves non-flexible long-term commitment of funds. It is also called as LONG TERM INVESTMENT DECISIONS, INVESTMENT DECISION MAKING, CAPITAL EXPENDITURE DECISIONS, PLANNING CAPITAL EXPENDITURE, ANALYSIS OF CAPITAL EXPENDITURE.

CAPITAL BUDGETING:

CAPITAL BUDGETING Planning and controlling of Capital Expenditure. Process of deciding whether or not to commit resources to a particular long term project whose benefits are to be realized over a period of time.

IMPORTANCE OF CB:

IMPORTANCE OF CB Large Investments Long term commitment of funds Irreversible nature Long term effect on profitability Difficulties of investment decisions National Importance

PROCESS:

PROCESS

IDENTIFY INVESTMENT PROPOSALS:

IDENTIFY INVESTMENT PROPOSALS Proposal may originate from top management or any officer or any worker in the organization. The departmental head analyzes the various proposals and submit the suitable proposal to Capital Expenditure Planning Committee or to the officers concerned.

SCREENING PROPOSALS:

SCREENING PROPOSALS Expenditure Planning Committee screens the various proposals from various angles to ensure that these are in accordance with the corporate strategies or selection criterion of the firm.

EVALUATION OF VARIOUS PROPOSALS:

EVALUATION OF VARIOUS PROPOSALS Evaluate the various proposals through different methods such as Pay Back Period Rate of return method Net Present Value Method Internal rate of return method Proposals evaluated may be classified into Independent proposals Dependent proposals Mutually Exclusive proposals

FIXING PRIORITIES:

FIXING PRIORITIES After evaluating various proposals, the unprofitable or uneconomic proposals may be rejected. It may not be possible for the firm to invest immediately to all the acceptable proposals due to limitation of funds. It is very essential to rank the various proposals and establish priorities after considering urgency, risk and profitability involved therein.

FINAL APPROVAL:

FINAL APPROVAL Proposals meeting the evaluation and other criteria are finally approved and preparing the capital expenditure budget. It lays down the amount of estimated expenditure to be incurred on fixed assets during the budget period.

IMPLEMENTING PROPOSALS:

IMPLEMENTING PROPOSALS Implement the proposals and review the profitability of the project in the changed circumstances. While implementing it is better to assign responsibilities for completing the project within the given time frame and cost limit.

PERFORMANCE REVIEW:

PERFORMANCE REVIEW Last stage of the project Evaluation is made through post completion audit by way of comparison of actual expenditure on the project with the budgeted one. Comparing actual return from the anticipated return. If any unfavorable variances, should be looked into and the causes are identified sot that corrective action may be taken in future.

authorStream Live Help