Merits and Drawbacks of Budgeting: A Study of Capital Budgeting Practices in Australia and Canada

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By student name
Professor
University
Date: 25 April 2018.
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Contents
Introduction.................................................................................................................................................3
Merits carried by Budgeting........................................................................................................................4
Drawbacks of the budgeting process...........................................................................................................5
Selection of the Journals to be discussed....................................................................................................5
Brief synopsis about the journal topics selected.....................................................................................6
Purpose of the journal and exploration of possible research questions..................................................6
Similarities in the two studies..................................................................................................................7
Differences observed in the two studies.................................................................................................8
Conclusion...................................................................................................................................................9
References.................................................................................................................................................10
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Introduction
Budget is a term associated with almost any economic activity that we perform in our day-to-
day lives. Its application can be seen in across all forms of routine time. In simpler terms budget
can be defined as an activity to monitor, plan and control. The thing to be monitored, planned
or controlled can be either time or money or any other resource that is not unlimited and
carries a value. Every company needs to have a proper budget based on which they can decide
what future course of action they need to take. There are many such areas in which the
company might have to struggle if proper budgeting is not done (Appelbaum, et al., 2018).
Budgeting helps in deciding what if there is any situation in which the management is stuck how
they will come out of it. The necessity of budget comes from not only from a control
perspective but also from a perspective of discipline. Without a definite course of action being
set on utilization of a limited resource there are chances of it might being under or over utilized
which could in turn deviate actual results of a task from the target. Now the question arises as
to how to determine a budget. This process involves a host of calculations that calls for
estimation and assumptions of certain costs and incomes that are to arise in the future periods.
Budget to some extent eliminates uncertainty and offers smoothness in terms of flow of funds.
Regardless of the nature of the organization, its size of operations, extent of availability of a
resource, it must plan and implement a budget to achieve desired results. There are various
categories of budgets that are involved that are widely used in the corporates. Some of them
include – Sales budget, capital budget, cash budget, project budget and revenue budget. In
addition, production budget. Sales budget is considers estimated the quantum of sales the
company is likely to have given the market conditions (Arnott, et al., 2017). Cash budget lists
out the relevant cash expenditures to be made during a period and the amount of cash the
entity expects to generate from various sources to have a picture of the cycle. Production
budget is being considered with the units to be produced during the year with given amount of
resources. Capital budget calculated the capital expenditures required taking into consideration
the present value of time. Project budget points out all the incomes and expenses that are or
will be related to a project during its operational phase. These various types of budget can be
presented annually, its frequency may be increased to quarterly, or monthly depending on the
requirements felt by the management as to if, it wants to have shorter period targets. There
are other classifications of budgets as well based on certain attributes it possesses. There
flexible budgets as well which are considered more realistic than static or fixed budgets.
Flexible budgets account for increase in prices of material and labour or other factors.
Management in some cases also sets performance budgets, which measure actual
performances during the year against planned levels of execution (Bromwich & Scapens, 2016).
One of the newer versions of budgeting is the Zero-based Budgeting, which is used when the
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