Budgeted Income Statement for National Australia Bank

This report discusses the budgeted income statement for National Australia Bank, including elements of master budget such as sales, production, capital expenditure, direct materials, direct labour, manufacturing overhead, selling and administrative, and cash budget. It also compares the top-down and bottom-up approach to the budget process and suggests the approach suitable for the company. The report includes a budgeted income statement for 2019 based on the 2018 data. The subject is accounting and the course code is not mentioned. The document type is a report and the type of assignment is not mentioned. The college/university is not mentioned.

Managerial Accounting
1/21/2019
National Australian Bank

Accounting 1
Executive summary
The purpose of the report is to prepare a report on budgeted incomes statement for the year 2019
based on the company that has been selected for the analysis. The company that has been
selected for the report is National Australia Bank which is one of the ASX listed company in the
Australian market. The report findings show the explanation about the different elements of the
Master budget which are present in the accounting. Further, it includes the comparison about the
approach which includes top-down and the bottom-up approach related to the budget process
with the analyses that which approach is more appropriate for the National Australia Bank.
Further, this report includes the findings related to the data of the 2018 and 2018 budgeted
income statement.

Accounting 2
Contents
Introduction......................................................................................................................................4
Background of Company.............................................................................................................4
Elements of Master budget..............................................................................................................5
Sales budget.................................................................................................................................5
Production budget........................................................................................................................6
Capital expenditure budgets........................................................................................................6
Direct materials budget................................................................................................................7
Direct labour budget....................................................................................................................7
Manufacturing overhead budget..................................................................................................7
Selling and administrative budget...............................................................................................8
Cash budget.................................................................................................................................8
Budgeted financial statements.....................................................................................................8
Comparison of a top-down and bottom-up approach to the budget process...................................9
Top-down approach.....................................................................................................................9
Bottom-up approach..................................................................................................................10
Suggestion for the approach to the company.................................................................................11
The budgeted income statement for 2019......................................................................................12
Opinion on Changes..................................................................................................................13
Conclusion.....................................................................................................................................15

Accounting 3
References......................................................................................................................................16
Appendix........................................................................................................................................18

Accounting 4
Introduction
The aim of the report is to understand the concept of the budgeted income statement of the
selected ASX listed company which include the National Australia Bank. An income statement
for the business reports about its earning and expenditures for the set period of time that can be
naturally by the month, quarter or for a year. An accounted income announcement is basically a
prediction related to the income statement for the future. The report includes the explanation of
the elements related to the master budget that might be used by the company while managing
their operations. It also includes the discussion related to the comparison of top-down and
bottom-up approach that is present in the budget process. The analysis related to the suitability of
the approach for the company is discussed in the report. Moreover, based on the 2018 Annual
Report a budgeted income statement for 2019 is prepared with the motive to compare the
variance and changes.
Background of Company
National Australia Bank (NAB) is considered as one of the fourth largest monetary institutions
that are performing their business operation in Australia in terms of the marketplace
capitalisation, earning and customers. The bank is able to maintain the 21st ranking in the work in
terms of the market capitalisation. The bank is currently operating their business operations
through approx. 1590 branches and service centres with approx. 4,421 ATMs across Australia,
New Zealand and Asia were the bank is serving to more than 12.7 million customers according
to the data till 2014. At the present time, the company have more than 30,000 people where they
are serving more than 9,000,000 customers at more than 900 locations (National Australian

Accounting 5
Bank, 2018). The company is funding to the important infrastructure in the communities which
majorly include schools, hospitals and roads.
Elements of Master budget
A master budget is one of the plans that are formed with the motive to manage the manufacturing
and sales activity of the company with the motive to meet or achieve the profit and cash flow
goods. The master budget preparation by the organisation needs careful coordination of the
different budgets that cover in all the parts of the organisation (Ashe-Edmunds, 2018). Thus, this
has been found master budget is one of the realistic but not complacent budgets. The major
mechanisms of the master budget majorly include income and expenses, overhead and
production costs and the monthly, annual, average and projection totals. Some of elements of the
master budget are discussed below: -
Sales budget
Sales budget plays a vital role in the formulation of the master budget as it is the straight result of
the sales prediction which is grounded on the deliberation of the demand and supply situation,
competition, future prediction of sales, past sales trends and some of the periodic changes that
create the impact on sales and so on (Cox, 2010). The forecasting of the sales related to the
company depends on the different factors which majorly include the population trends, general
economic environment, the purchasing power of the consumers, disposable income, inflation rate
and the public trends of the product and many others (Accounting tools, 2018). Most of the
companies make use of the sales budget to set the departmental goals, estimated earning with the
predicted production needs and requirements. The sales budget creates an impact on both the
operating master budgets and the overall master budget of the company.

Accounting 6
Production budget
The production budget is another important element of the master budget which is required to be
prepared by the company for the computation of the master budget. The production budget
includes the planning or prediction of the future manufacturing operations that are majorly based
on the forecasting of the sales with the sales budget (Trotman & Carson, 2018). The aim of the
production budget is to obtain the maximum consumption of the manufacturing approaches and
services. The production financial plan is majorly equipped in two parts, in which one of it is the
manufacture volume budget and another budget is prepared which majorly include the cost of
manufacturing.
Thus, it is found that the production volume budget is linked with the products related to the
physical units and it involves planning related to the production of the goods and services. It has
been found that the production budget transactions with all the budgets attributable to the
production of the product.
Capital expenditure budgets
The budget of the capital expenditure is considered as the budget plan that has been prepared for
the long term investment due to which it majorly include the expenditure estimation for the new
plants and equipment’s, foremost installation, replacement related to the present equipment’s,
renovation of the building and many others. All these budgets are typically considered as the
substantial expenditure in terms of both duration and magnitude (Gitman, Juchau & Flanagan,
2015). Capital budgeting is considered as the part of long term planning which includes different
well defines a phase of the programs which is known as milestones. Every stage is being planned
for the time, cost and efforts in a self-controlled method.

Accounting 7
Direct materials budget
The direct material budget is used with the motive to calculate the material that is must be
purchased in the set time period with the motive to fulfil the needs of the production budgets.
The companies who majorly sell the product maintain this budget which includes all the cost that
is faced by the company (Chand, 2018). This budget support in finding out the high or low cash
is required by the company to make the purchase of the materials. Thus, this budget contributes
while preparing the master budget.
Direct labour budget
Direct labour budget is another important element of the master budget. It is majorly used by the
company with the motive to compute the figure of labour houses which will be required to create
the units detailed in the budget (Wildavsky, 2017). This has been found that the computation of
the direct labour budget is essential for the estimation of the number of personnel who will be
required for the industrial area during the course of the budgeted period.
Manufacturing overhead budget
Manufacturing overhead budget comprises entire cost that is linked to the production other than
the cost of direct labour and material. In the master budget, the material about the manufacturing
overhead budget converts the part of the COGS the thing in the master budget (Bragg, 2014).
Thus, this shows that this budget contributes effectively in preparing the master budget.
Selling and administrative budget
This budget is incorporation of reserves of all non-manufacturing sectors which comprise of
sales, services departments and book-keeping. This budget is majorly prepared by the company
wither on monthly or quarterly basis. This budget spilt into the segments for the purpose of the

Accounting 8
separate marketing and sales budget with a distinct administrative budget (Accounting tools,
2018). The details or information in this budget is not directly linked or derived from any other
budgets. Moreover, this has been found that the master budget profit and loss statement consist
of expenses with the sales revenue, cost of goods sold with the other expenses like depreciation
and interest.
Cash budget
Cash budget shows the forecasting related to the cash inflows and outflows that is linked to
business in the set time frame. Thus, this has been found cash budget is used to measure whether
the entity is equipped with sufficient cash which is must to operate the business operations
(Noreen, Brewer & Garrison, 2014). This has been found that in the cash budget the company
make use of the sales and production forecasting to form a cash budget with the assumptions that
are required for spending accounts receivable. If the company is not capable to effectively
maintain the liquidity in the marketplace then it will affect the operations. It is must for the
company then to increase the wealth by allotting the stock or taking on debt.
Budgeted financial statements
Budgeted financial statements prediction is incomplete without the estimation of income level
and balance sheet of company. This has been found that budget material is taken over into the
budget field for each line item in statement within the accounting software of the company
(Pilbeam, 2018). These predictions are considered as the important as it plays a vital role in the
estimation of the master budget by the company.

Accounting 9
Comparison of a top-down and bottom-up approach to the budget
process
In the present scenario, this has been found that there are different types of the budgeting
approach which can be used by the company in their process of the budget. Out of which, two
approaches are top-down and bottom-up approach. These approaches vary from each other and
the comparisons between the approaches are discussed below: -
Top-down approach
The top-down approach is a budgeting approach in which senior management enhance a high-
level budget for company. In company, once the top-level statistics are formed, the accounts are
allocated to the separable department which includes the formation of the detailed budget with
their allocation. In the business, the approach of top-down consists of senior management team
who prepare the budget for every department in organisation (Braun, 2017). After preparing the
budget for the entire organisation, the amounts get allocated to the different individual
departments as these departments take those amounts and to form their personal equivalent funds
within the boundaries of the management level formed budget.
Advantages: - The advantages of top-down budgeting include the executive team with the
involvement of lower management doesn't have to take the time to form budget. This approach
helps the company in saving the time for individual employees who are majorly involved in the
day-to-day rather than the total approach for the company (Kapinos & Mitnik, 2016). Further,
the advantage of this approach is that decision can be taken by the company more quickly as
compared it to the other approaches.

Accounting 10
Disadvantages: - The disadvantages of the top-down approach is for the employees of the
company who may not be involved with day-to-day which makes the other may not be conscious
of detailed expenditures which are mandatory to be known by the employees of the company
(Duttweiler, 2011). Thus, these lead to the issues for the departments that are majorly looking for
the resource that doesn’t fit into the top-down budget. Another major disadvantage of the top
down approach is that top level management needs the adequate skills so that they can prepare
the budget effectively. The lack of skills can affect the budget and will misguide the employees
towards the goals of company.
Bottom-up approach
The approach of the bottom up is used by the company for the budgeting of the company. The
process in the approach starts in the separate subdivisions where the manager forms a budget and
then sends it upwards for the endorsement. Further, the budget is permitted, studied or sent back
with the motive of the modification and a master budget is formed from different department’s
formations (Chernyatina, Guzenko & Strelkov, 2015). Thus, this has been found that these types
of budgeting work in contrast to the top-down budgeting. In other words, this has been found that
the process initiates with the process that begins in the individual departments where the
managers of the company form the budget and send the same for the approval from the top level
management.
Advantages: - The bottom-up budgeting offers different advantages which computation of more
accurate figures that improve the morale because of the capability to participate in the process of
the budgeting. In this, the major advantage is that the communication and commitment are done
on behalf of the administrators as they directly get indulge in the process of budget forming. Its

Accounting 11
biggest advantage is that the budget is prepared by the employees who are familiar about every
department which leads to the rise in the understanding of the employees within the company.
Disadvantages: - There are different disadvantages that are involved in the process which
majorly include cost overruns, over-budgeting and the deficiency of management control over
the process with their spending (Weygandt, Kimmel & Kieso, 2015). The issues which might
create an impact on the organisation are that the managers and employee will focus on their
respective departments instead of the corporate objectives. Though, the motive of the employees
and their manager should be to meet the organisation goals instead of departmental goals.
Suggestion for the approach to the company
From the above discussion, this can be concluded that the National Australian bank should adopt
the bottom top approach because the company is performing its business operations in different
areas due to which they have many departments who are performing their work at different
locations. This is the reason it has been suggested to the National Australian Bank to apply this
approach for the process of budgeting. Moreover, it has been found that the use of this approach
will provide the advantage to the employees as they will learn the way of proper allocation of the
resources for the accomplishment of the organisation goals and objectives (Warren, Reeve &
Duchac, 2013). In addition, the separate budget of the departments will reduce the complications
which might be faced by the employees of the company while making the use of the Top-down
approach.

Accounting 12
The estimated income statement for 2019
This section comprises of the predicted income statement of the company for the year 2019. The
changes that are reflected in the budgeted income statement are stated below: -
1. Sales of the company are probable to increase by 10%
2. COGS are expected to increase by 8%
3. Expenditures are expected to rise by 2%.
The variance between the actual and budgeted income statement has been reflected so the impact
on the total expenses and the revenue of the company can easily be identified. The variance
arises because of the difference between the actual as well in the budgeted quantity of every
product that is sold by the company. The variance amount is calculated with the Standard
proportion for actual– Budgeted quantity.
Income statement of National Australia Bank LTD
National Australia Bank LTD (NAB)
Income statement Actual Budgeted
2018 2019
Varianc
e
$m $m
Interest income
$
28,543.00
$
31,397.30 -10%
Interest expense
$
(15,038.00)
$
(16,241.0
4) -8%
Net interest income
$
13,505.00
$
15,156.26 -12%
Other income
$
5,596.00
$
6,155.60 -10%
Operating expenses
$
(9,910.00)
$
(10,108.2
0) -2%
Credit impairment charge $ $ -2%

Accounting 13
(791.00) (806.82)
Profit before income tax
$
8,400.00
$
10,396.84 -24%
Income tax expense
$
(2,455.00)
$
(2,504.10) -2%
Net profit for the year from
continuing operations
$
5,945.00
$
7,892.74 -33%
Net (loss) after tax for the year from
discontinued operations
$
(388.00)
$
(395.76) -2%
Net profit for the year
$
5,557.00
$
7,496.98 -35%
Net profit attributable to non-
controlling interests
$
3.00 0 100%
Net profit attributable to owners of
NAB
$
5,554.00
$
7,496.98 -35%
Opinion on Changes
The major changes that are witnessed in the actual and budgeted income statement of the
company are in the profit of the company. It has been found that the profit of the company will
increase in the budgeted income statement for the year 2019 by 35% comparing it with the 2018
income statement. Further, it has been found that the expenses of the National Australian Bank
will increase due to which the company needs to manage the funds and resources so that they can
meet their expenses in the effective manner (National Australian Bank, 2018). The budgeted
income statement will help the company in estimating the amount that they are willing to expand
in the near future. This has been found that NAB can take help from the budgeted income
statement for the estimation of the amount that they can expand in other projects and operations.
In the expected year, all the expenses are going to increase which requires the additional focus of
the company with the proper allocation of the cost and resources. This helps the company in

Accounting 14
making the effective and efficient use of the resources so that the company can incur any
unexpected expenses that can arise in the coming year. The variance majorly reflects that the
profit of the company will help them in meeting the expenses that are incurred by the company.

Accounting 15
Conclusion
In the end, it can be concluded that the master budget formation requires different budgets of the
company which are considered as the elements of the master budget. The components of the
master budget are explained with the role of sub-budget in the formation of master budget. In
addition to this, it has been found that the company make use of the top-down and bottom-up
approach which are compared in the report. The approach of the budgeting process which should
be appropriate for the company is suggested that is a bottom-up approach. This approach helps
the company in conducting their budgeting process effectively within the organisation. In the
end, the income statement of the NAB is predicted with the help of the base year. The data of the
base year and the budgeted year data have been compared and opinion for the projected budgeted
income statement has been discussed within the report.

Accounting 16
References
Accounting tools. (2018). Master Budget. Retrieved from:
https://www.accountingtools.com/articles/2017/5/14/master-budget
Accounting tools. (2018). Selling and administrative expense budget. Retrieved from:
https://www.accountingtools.com/articles/2017/5/17/selling-and-administrative-expense-budget
Ashe-Edmunds, S. (2018). Major Components of a Master Budget. Retrieved from:
https://smallbusiness.chron.com/major-components-master-budget-59414.html
Bragg, S. M. (2014). Budgeting: The Comprehensive Guide. AccountingTools.
Braun, G. (2017) Top Down or Bottom Up Corporate Budgeting – Which One is Best?.
Retrieved from: http://www.truesky.com/top-down-or-bottom-up-corporate-budgeting-which-
one-is-best/
Chand, S. (2018). 7 Most Important Components of a Master Budget. Retrieved from:
http://www.yourarticlelibrary.com/management/7-most-important-components-of-a-master-
budget/3482
Chernyatina, A. A., Guzenko, D., & Strelkov, S. V. (2015). Intermediate filament structure: the
bottom-up approach. Current opinion in cell biology, 32, 65-72.
Cox, P. (2010). The Master Budget project: detailed analysis. Strategic Finance, 92(4), 62.
Duttweiler, R. (2011). Managing liquidity in banks: A top-down approach. New Jersey: John
Wiley & Sons.

Accounting 17
Gitman, L. J., Juchau, R., & Flanagan, J. (2015). Principles of managerial finance. AU: Pearson
Higher Education.
Kapinos, P., & Mitnik, O. A. (2016). A top-down approach to stress-testing banks. Journal of
Financial Services Research, 49(2-3), 229-264.
National Australian Bank. (2018). About us. Retrieved from: https://www.nab.com.au/about-us
National Australian Bank. (2018). Annual Financial Report 2018. Retrieved from:
https://www.nab.com.au/content/dam/nabrwd/documents/reports/corporate/2018-annual-
financial-report.pdf
Noreen, E. W., Brewer, P. C., & Garrison, R. H. (2014). Managerial accounting for managers.
New York: McGraw-Hill/Irwin.
Pilbeam, K. (2018). Finance & financial markets. UK: Macmillan International Higher
Education.
Trotman, K., & Carson, E. (2018). Financial accounting: an integrated approach. AU: Cengage.
Warren, C., Reeve, J. M., & Duchac, J. (2013). Financial & managerial accounting. Chicago:
Cengage Learning.
Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2015). Financial & managerial accounting.
New Jersey: John Wiley & Sons.
Wildavsky, A. (2017). Budgeting and governing. New York: Routledge.

Accounting 18
Appendix
National Australia Bank LTD (NAB)
Income statement Actual Budgeted
2018 2019
Varianc
e
$m $m
Interest income
$
28,543.00
$
31,397.30 -10%
Interest expense $ (15,038.00)
$
(16,241.04) -8%
Net interest income
$
13,505.00
$
15,156.26 -12%
Other income $ 5,596.00
$
6,155.60 -10%
Operating expenses
$
(9,910.00)
$
(10,108.20) -2%
Credit impairment charge
$
(791.00)
$
(806.82) -2%
Profit before income tax $ 8,400.00
$
10,396.84 -24%
Income tax expense
$
(2,455.00)
$
(2,504.10) -2%
Net profit for the year from continuing
operations $ 5,945.00
$
7,892.74 -33%
Net (loss) after tax for the year from
discontinued operations
$
(388.00)
$
(395.76) -2%
Net profit for the year $ 5,557.00
$
7,496.98 -35%
Net profit attributable to non-controlling
interests $ 3.00 0 100%
Net profit attributable to owners of NAB $ 5,554.00
$
7,496.98 -35%

Accounting 19