APPRAISAL OF CAPITAL BUDGETING DECISIONS IN GOVERNMENT PARASTATALS
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APPRAISAL OF CAPITAL BUDGETING DECISIONS IN GOVERNMENT PARASTATALS
APPRAISAL OF CAPITAL BUDGETING DECISIONS IN GOVERNMENT PARASTATALS, CHAPTER ONE
1.1 INTRODUCTION
Most government parastatals use capital budgeting decisions as a statutory instrument to make decisions, such as the Nigerian National Petroleum Corporation (NNPC). This government parastatal aids in the exploration of crude oil and natural gas, as well as the refining or processing of crude oil and natural gas to generate petroleum and other denatures for both internal and export consumption.
The corporation’s activities are expected to include transportation and distribution of petroleum products throughout Nigeria, as well as the manufacturing of petrol-chemicals to provide the raw materials required for the country’s rapid agricultural and industrial development. They are also in charge of overseeing oil firms’ activity in the country.
Most oil corporations have expanded significantly since 1996. This is evident in its size and operational region, which encompassed the entire length and breadth of the country.
Other government departments involved in capital budgeting operations include: (1) Engineering Company of Nigeria (ENCON).
This is a joint venture between NNPC and Bethel, a multi-national engineering and consulting firm based in the United States.
B. Nigerian Petroleum Development Company (NPDC): This is a group’s petroleum producing company. Ngos owns it entirely. It is involved in crude oil and gas exploration and production.
NNPC’s purpose is to profitably operate and maximise the size of petroleum exploration and production.
Nigeria has a development company limited (NGDC), which is also part of the NNPC. Its aim is to efficiently gather, treat, transmit, and market Nigerian natural gas and byproducts to key industries and utility gas distribution firms in Nigeria. Integrated Data Service Company Limited (IDSC) is another.
STATEMENT OF THE STUDY 1.2:
The purpose of this study, which is an evaluation of capital budgeting in government parastatals, is to determine how various appraisals appraise capital budgeting decisions.
The usefulness of financial statements improves decision making in every organisation. The information provided should be current and relevant.
The recent year’s continued inflation has raised awareness of some of the disadvantages of historical cost accounting. The following issues are related to capital budgeting decisions in government parastatals.
i. The inability to give up-to-date information for decision-making.
ii. Capital evaluation models and investment appraisal are limited.
iii. A lack of infrastructural facilities impedes the organization’s output and service.
Finally, it is critical to monitor and post-audit all capital budgeting decisions. However, this is expensive and, in practise, is ignored.
Management should engage in these activities because they can benefit the firm’s overall returns, risk, and value.
1.3 OBJECTIVES OF THE STUDY
The study’s major goal is to investigate how Nigerian government parastatals such as NNPC make capital budgeting decisions. Its objectives are to discover how investment decisions are made and how accurate the information supplied to management is in making investment decisions.
It also seeks to ascertain the specific capital budgeting technique employed by the management of government parastatals in evaluating the investments to be made.
1.4 SIGNIFICANCE OF THE STUDY
The significance of this research lies in its utility. This study will be of great interest to individuals in charge of making capital budgeting decisions in businesses. The research will also be extremely beneficial to accounting and banking students who are interested in this field.
It is hoped that the research findings will be of primary importance to government parastatal administration.
1.6 OPERATIONAL DEFINITION OF TERMS
Capital Investment: This is an investment that will generate returns in the future that are quite distant from the moment of the investment.
Capital budgeting is the practise of reducing resources in a project whose costs and benefits are spread out across time.
Capital projects are a company’s real assets and productive fixed assets.
Accounting information: This takes the form of financial reports, which are used not only to assess individuals’ and groups’ historical performance, but also to create and make future-oriented decisions.
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