Budgeted Income Statement for Austar Gold Limited

The report discusses the budgeted income statement for Austar Gold Limited for the year 2019, along with the elements of the master budget and a comparison of top-down and bottom-up approach. It suggests the top-down approach as suitable for the company and provides insights on changes in sales, cost of goods sold, and expenses.

Accounting

Accounting 1
Executive summary
The aim of the report is to select one of the ASX listed company and to comment on the
budgeted incomes statement of the financial year 2019. The company that has been selected is
Austar gold limited which is considered for the preparing the budget. This has been found from
the analysis that there are different elements of the master budget which contribute while
preparing the budget of the company. Moreover, the budgeting approaches are compared in the
report which includes a top-down and bottom-up approach. The approach which is suitable for
the company is suggested according to their business operations. The budgeted income statement
for 2019 for Austar gold limited is prepared based on the data of 2018.

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Contents
Introduction......................................................................................................................................3
About company............................................................................................................................3
Elements of master budget...............................................................................................................4
Comparison of a top-down and bottom-up approach to budget process.........................................6
A suitable approach for the company..............................................................................................9
The budgeted income statement for 2019......................................................................................10
Opinion on changes...................................................................................................................11
Conclusion.....................................................................................................................................13
References......................................................................................................................................14
Appendix........................................................................................................................................16

Accounting 3
Introduction
The purpose of the report is to prepare the budgeted income statement of the ASX listed
company that is Austar gold limited. The master budget along with their elements will be
explained in the report. These elements of the master budget contribute effectively for preparing
the accurate budget. The comparison of the top-down and bottom-up approach has been done
which will help in analysing the suitable approach for the company. The changes which are
projected in the budgeted income are majorly related to the sales, cost of goods sold and
expenses. Further, the changes in the 2018 and 2019 income statement have been discussed.
About company
The company Austar Gold is performing the operation within Australia with the vision of
becoming the next mid-tier Australian gold producer. The company majorly emphasis on the
acquisition and return to the production of the low entry cost, the idle gold mines at the time of
the strong gold prices (AuStar Gold Limited, 2018). Along with this, the strategy majorly
includes employing a portfolio approach along with the different assets that are held in the highly
significant Eastern Victorian Goldfields. The company started performing their business
operations in the year 2003 and have headquarters in Spring Hill, Australia (AuStar Gold
Limited, 2018). This has been found that AuStar Gold Limited (ASX: AUL) is rapidly expanding
their gold business with an exciting portfolio of the near term development assets that is majorly
based on Morning Star Gold Mine in Victoria (ASX, 2018).

Accounting 4
Elements of the master budget
In the organisation, the functional division of the company forms the budget that is related to the
particular division. The master budget is considered as the sum total of all the divisional budgets
that is formed by all the divisions. It majorly includes the financial planning, cash flow forecast
and the budgeted profit and loss account along with the balance sheet of the company. The
master budget is prepared by the organisation with the help of the different types of elements
(Shcherbina and Tamulevičienė, 2016). The below given is the discussion of the few important
elements that contribute effectively in the preparation of master budget: -
 Sales budget: - This budget is considered as the foundation of the master budget because
the estimation of all the procurements, staff requirements and the cost of administration
are based on the sales of the company (Cox, 2014). Firstly, the numbers of units which
are required to be sold and price per unit are derived. According to this, the value of the
sales of the company is supposed to be calculated.
The sales budget is prepared based on the different factors which include: -
a) Estimation of demand in the market
b) Production capacity or an infrastructure facility
c) Analysis of industry
d) Present facility of supply
 Production budget: - This budget is majorly based on the sales budget which shows that
it is very essential to maintain the accuracy while preparing the sales budget of the
company (Weygandt, Kimmel and Kieso, 2015). The production budget majorly includes
the below-given factors: -

Accounting 5
a) Opening stock
b) Closing stock
c) Number of units to be produced
d) Buffer stock which is required to be maintained throughout the year
 Cash budget: - For all the divisional budgets, the organisation need the cash due to
which they plan for the cash budget. It is required to ensure that at the time of the year it
doesn’t run out of the cash because of the poor planning while preparing for the budget
(Chen, Weikart and Williams, 2014). This has been found that on the basis of the
production and sales budget which include the prediction of the receipts and payments.
For the preparation of the budget, the receipts and payments cycle of the customer and
suppliers are required to be analysed.
 Capital expenditure budget: - This budget is prepared by the company with the motive
to predict the long term investment which will be done by them in the near future. This
prediction will help them in raising the funds which will be used by them with the motive
to expand the business operations. In the competitive world, every business needs to plan
for the cost, time and efforts that they are going to invest in the project with the motive
earn the positive returns (Reddy, 2016). The estimation is majorly done by the company
for the new plant, purchase and equipment’s that will be required for effective business
operations.
 Budgeted income statement: - This budget is also essential for the estimation of the
master budget. The budgeted income statement is prepared on the basis of the above
budgets and the format of same has been given below: -
Particulars Amount

Accounting 6
Budgeted Income XXX
Less: Budgeted Expenses (XXX)
Budgeted profitability XXX
Comparison of a top-down and bottom-up approach to the budget
process
This section of the report includes the discussion about the two important approaches of the
budget which includes a top-down and bottom-up approach (Law, 2016).
Top-down approach
The top-down approach of the budget process is a budget that is set without allowing the ultimate
budget holder to have the opportunity which contributes in participating in the process of
budgeting. In other words, this can be said that in the top-down approach the senior or top-level
management of the company prepared the budget on behalf of their different divisions who are
located at the different places (Hong, Ling and Moorthy, 2015). This means that the top level
management takes the responsibility for preparing the budget the entire budget which will be
later on distributed by them to the different departments of the companies. The major benefit of
the approach is that it saves the time of the employees by forming the budget of the company.
Along with this, the top level management doesn’t blame the lower level management for the
wrong decisions that are taken by the company (Yılmaz, 2018). Though, on the other hand, the
approach also has a disadvantage as in this approach the employees will not be able to develop
the effective skills of preparing the budget.
Bottom-up approach

Accounting 7
The bottom-up approach is a system of the budgeting in which the budget holder maintains the
opportunity to participate in the setting of their own budgets. In the present era, there are
different companies who make use of the bottom-up approach for managing their business
processes. In other words, this can be said that the budget is prepared by the different managers
of the departments for their own operations. After preparing the budget, the departments get it
approved from the top level management. Thus, the top level management can review the budget
and approve it so that they can proceed with their targets and goals (Huikku, Hyvönen and
Järvinen, 2017). The major advantage of the approach is that the communication and
commitment can easily be done at the executive level because they direct get involve while
preparing the budget. Though, on the other hand, this has been found that the major disadvantage
of the approach is that the managers and the employee majorly focus on their respective
departments due to which their goals remain more of the departmental focused rather than the
organisation goals and objectives.
Top-down approach vs. Bottom-up approach
Basis of
comparison
Top-down approach Bottom-up approach
Targets In the top-down approach, the targets
are given to the executives by the
top-level management.
On the other hand, the executives
set the direction and define their
own mission while preparing the
budget (Raudla, 2013).
Execution time The preparation of the budget by the
top level management takes the long
execution time as they need to form
Preparation of the budget by the
departments generally takes short
duration because every department

Accounting 8
the master budget which includes the
budgets of the different division of
the organisation.
prepares their own budgets.
Status quo This approach of the master budget
generally creates the short term
impact on the company’s status quo.
This approach creates a strong
impact on the company's status quo
which remains for the long term.
This shows that it leaves the
tangible and lasting results.
Employees
involvement
In the top-down approach, this has
been found that the involvement of
the employees is less which means
that the employees follow the
instructions (Kramer and Hartmann,
2014).
The bottom-up approach shows that
the involvement of the employees is
high while preparing the budgets.
Type This approach is considered as the
undifferentiating and one-way
approach.
On the other hand, the bottom-up
approach is considered as the
specific and analytic approach.
Data In the top-down approach, the
aggregate level data of the metric is
supposed to be predicted. Along with
this, the senior management of the
company considers the historical data
while preparing the master budget of
On the other hand, the bottom-up
approach is data granular which is
limited to the desired level of
analysis. Moreover, the managers of
the departments will not make use
of any historical data. Though, they

Accounting 9
the company. can make use of the data which is
available on the internet (Kelly and
Rivenbark, 2014).
Accuracy In the top-down approach, the budget
which is prepared remains more
stable and accurate majorly at the
aggregate level.
In the approach of the bottom-up
approach, high accuracy is
maintained at the granular level.
Communication In the top-down approach of the
budget process, there is the
possibility of high communication
differences.
In the bottom-up approach, there is
the presence of better
communication among the
departments.
A suitable approach for the company
From the above discussion the concept of the top-down approach and the bottom-up approach
which helps in analysing the approach which remains suitable for the AuStar Gold limited. The
company is performing its operations in the Australian market only which means it might have
limited departments. Along with this, the departments of the company are limited to the
Australian market. The approach which will be suitable for the company is the top-down
approach in which the major decisions are taken by the senior and top-level management. The
approach is suggested to the company because their operation is critical in which the gaols are
essential to be set by the top level management. Along with this, it has been found that budget
allocation in the gold manufacturing company is required to be done in an effective manner

Accounting 10
because the department won’t be able to do in an accurate manner. Thus, this has been found that
top-down management is appropriate for the company.
The budgeted income statement for 2019
The budgeted income statement for the year 2019 for the AuStar Gold limited and the changes
related to the sales, costs of goods sold and expenses are reflected in the income statement of the
year 2018 (AuStar Gold Limited, 2018). The below given is the budgeted income statement of
the company for the year 2019 with the variance between 2018 and 2019.
AuStar Gold Limited (AUL.AX)
Actual Budgeted
Varianc
e
Particulars 2018 2019
$ $
Revenue
Interest Income
4,101.
00
4,511.
10 -10%
Other Income
477,463.
00
525,209.
30 -10%
Expenses
Administrative expenses
(213,504.0
0)
(217,774.0
8) -2%
Consultancy and legal expenses
(647,314.0
0)
(660,260.2
8) -2%
Compliance and regulatory
expenses
(125,834.0
0)
(128,350.6
8) -2%
Depreciation expense
(83,060.0
0)
(84,721.2
0) -2%
Director and employee related
expenses
(153,219.0
0)
(156,283.3
8) -2%
Promotion and communication
costs
(7,880.0
0)
(8,037.6
0) -2%
Other expenses
(207,571.0
0)
(211,722.4
2) -2%
Interest expense
(375,843.0
0)
(383,359.8
6) -2%

Accounting 11
Impairment of exploration
expenditure - -
Reversal of impairment
802,255.
00
818,300.
10 -2%
Share Based Payments
(175,764.0
0) - 100%
Loss before income tax expense
(706,170.0
0)
(502,489.0
0) 29%
Income tax expense - -
Loss after income tax expense
(706,170.0
0)
(502,489.0
0) 29%
Other comprehensive income
Total comprehensive loss for the
period
(706,170.0
0)
(502,489.0
0) 29%
Note: Cost of goods sold is not available due to which the adjustment of
the same has not been reflected.
It is assumed that all the expenses are projected to increase by 2%.
The share-based payments cannot be predicted for the year 2019 so it is
assumed to be 0.
It is assumed that the reversal of the impairment will also increase by 2%
and it is considered an expense in profit or loss for assets.
Opinion on changes
The comparison of the 2018 and 2019 data reflects that the major changes will appear in the loss
of the company. Loss before income tax expense has reflected the variance of the 29% which
means that the rise in the sales helps the company to increase the revenue with this there will be
a decrease in the loss. It means that loss will be attained by the company but it will be less as

Accounting 12
comparing it with the year 2019. The major adjustment reflects the variance of 10% and 2%
negatively which shows that there is a rise in the amount of revenue as well as the expenses in
the budgeted year.
According to the analysis, it has been found that the AuStar Gold Limited Company is making
the loss due to which the company should put the efforts which helps them to increase the
revenue or sales of the company. The rise in the revenue will help the company in earning the
profit with this they can also try to reduce their expenses. The reduction in the expenses of the
company is the only way through which they can work to increase the profit and reduce the loss.
It is essential for the company to earn the profit because this is the way through which they can
get the attention of the maximum customers.

Accounting 13
Conclusion
In the end, it can be concluded that the report is based on the budgeting concept of the
accounting due to which it includes the discussion related to the master budget and its elements
which is majorly used by the company. Further, the approaches which are used by the company
at the budgeting process are discussed. The approaches advantages and disadvantages are
reflected which will be faced by the company when they will adopt any of the approaches. Along
with this, the differences that are present between both the approaches are discussed which helps
in understanding the appropriate budget for the company. Further, the top-down approach has
been suggested to the selected ASX Company for the assignment. The selected ASX Company
for the report is AuStar Gold Limited; the company is performing the business operations in the
market of Australia. In the end, the budgeted income statement of the company is prepared for
the year 2019 that is based on the details of 2018. The budgeted income statement is prepared on
the different adjustment related to the COGS, sales and expenses of the company.

Accounting 14
References
ASX (2018) Aul Austar Gold Limited [Online]. Available from:
https://www.asx.com.au/asx/share-price-research/company/AUL [Accessed on 30th January
2018]
AuStar Gold Limited (2018) Annual Report 2018 [Online]. Available from:
http://www.austargold.com/wp-content/uploads/2018/10/Annual-Report-2018.pdf [Accessed on
30th January 2018]
AuStar Gold Limited (2018) Company Overview [Online]. Available from:
http://www.austargold.com/about-us/company-overview/ [Accessed on 30th January 2018]
AuStar Gold Limited (2018) Highlights [Online]. Available from: http://www.austargold.com/
[Accessed on 30th January 2018]
Chen, G.G., Weikart, L.A. and Williams, D.W. (2014) Budget tools: Financial methods in the
public sector. CQ Press.
Cox, P. (2014) Master budget project: Analysis of cash budget report. Strategic Finance, 95(9),
p.52.
Hong, N.Y., Ling, C.S. and Moorthy, M.K. (2015) Improved budget attainment in organisations:
a holistic approach. International Journal of Physical and Social Sciences, 5(3), p.617.
Huikku, J., Hyvönen, T. and Järvinen, J. (2017) The role of a predictive analytics project initiator
in the integration of financial and operational forecasts. Baltic Journal of Management, 12(4),
pp.427-446.

Accounting 15
Kelly, J.M. and Rivenbark, W.C. (2014) Performance budgeting for state and local government.
New York: Routledge.
Kramer, S. and Hartmann, F. (2014) How top‐down and bottom‐up budgeting affect budget slack
and performance through social and economic exchange. Abacus, 50(3), pp.314-340.
Law, J. ed. (2016) A dictionary of accounting. UK: Oxford University Press.
Raudla, R. (2013) Budgeting during austerity: Approaches, instruments and practices. Budgetary
Research Review (BRR), 5(1), pp.30-39.
Reddy, B.S. (2016) Budget Process in Telecom Sector. International Journal, 4(6).
Shcherbina, G. and Tamulevičienė, D. (2016) Budget formation and implementation in
Ukrainian companies: an empirical study. Science and studies of accounting and finance:
problems and perspectives, 10(1), pp.162-176.
Weygandt, J.J., Kimmel, P.D. and Kieso, D.E. (2015) Financial & managerial accounting. New
Jersey: John Wiley & Sons.
Yılmaz, F. (2018) Budgeting as a Tool for Sustainable Development. In Handbook of Research
on Supply Chain Management for Sustainable Development (pp. 42-60). IGI Global.

Accounting 16
Appendix
AuStar Gold Limited (AUL.AX)
Actual Budgeted
Varianc
e
Particulars 2018 2019
$ $
Revenue
Interest Income 4,101.00 4,511.10 -10%
Other Income 477,463.00 525,209.30 -10%
Expenses
Administrative expenses (213,504.00) (217,774.08) -2%
Consultancy and legal expenses (647,314.00) (660,260.28) -2%
Compliance and regulatory
expenses (125,834.00) (128,350.68) -2%
Depreciation expense (83,060.00) (84,721.20) -2%
Director and employee related
expenses (153,219.00) (156,283.38) -2%
Promotion and communication
costs (7,880.00) (8,037.60) -2%
Other expenses (207,571.00) (211,722.42) -2%
Interest expense (375,843.00) (383,359.86) -2%
Impairment of exploration
expenditure - -
Reversal of impairment 802,255.00 818,300.10 -2%
Share Based Payments (175,764.00) - 100%
Loss before income tax expense (706,170.00) (502,489.00) 29%
Income tax expense - -
Loss after income tax expense (706,170.00) (502,489.00) 29%

Accounting 17
Other comprehensive income
Total comprehensive loss for the
period (706,170.00) (502,489.00) 29%
Note: Cost of goods sold is not available due to which the adjustment of
the same has not been reflected.
It is assumed that all the expenses are projected to increase by 2%.
The share-based payments cannot be predicted for the year 2019 so it is
assumed to be 0.
It is assumed that the reversal of the impairment will also increase by 2%
and it is considered as an expense in profit or loss for assets.