Which of the following statements about financial planning is NOT correct?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → For longer periods, financial planning becomes easier and more useful.
Option (1) For longer periods, financial planning becomes easier and more useful. — False. Financial planning is usually done for three to five years. For longer periods it becomes more difficult and less useful, because the future is harder to foresee.
Option (2) Financial planning tries to forecast all the items which are likely to undergo changes. — True. The planning process tries to forecast every item likely to change, such as expenses and revenues. This lets management foresee the fund needs, both the amount and the timing.
Option (3) Excess funding is almost as bad as inadequate funding. — True. Too much money is almost as harmful as too little. Idle funds add to the cost and may encourage wasteful spending.
Option (4) Budgets are an example of financial planning exercise in greater details. — True. Budgets are plans for one year or less. They are financial planning done in greater detail.
NCERT (2026-27 Edition): “Financial Planning … Financial planning process tries to forecast all the items which are likely to undergo changes. It enables the management to foresee the fund requirements both the quantum as well as the timing. Likely shortage and surpluses are forecast so that necessary activities are taken in advance to meet those situations. …” “Financial Planning … (b) To see that the firm does not raise resources unnecessarily: Excess funding is almost as bad as inadequate funding. Even if there is some surplus money, good financial planning would put it to the best possible use so that the financial resources are not left idle and don’t unnecessarily add to the cost. …” “Financial Planning … Typically, financial planning is done for three to five years. For longer periods it becomes more difficult and less useful. Plans made for periods of one year or less are termed as budgets. Budgets are example of financial planning exercise in greater details. They include detailed plan of action for a period of one year or less. …” |