Budget Analysis of an ASX Listed Company in Australia

The report's preparation aims to help readers comprehend budget ideas as well as the components and methods involved in budget preparation. Additionally, the chosen ASX-listed company that is operating in the Australian market has its budgeted income statement for the company prepared. The report's goal is to comment on and express an opinion regarding the budgeted income statement for the 2019 fiscal year, which is based on information from the selected ASX Company for 2018.

Managerial Accounting
1/28/2019

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Executive summary
The report is prepared with the purpose to understand the concepts of the budget and the
elements with the approaches that contribute in preparing the budget. Further, the budgeted
income statement for the company is prepared on the selected ASX listed company that is
performing the operations in the Australian market. The company that has been selected for the
analysis is Asian American medical group limited. The comparison of the approaches has been
done with the recommendation to the company according to their business processes. In the end,
the budgeted income for the selected ASX Company has been witnessed and the opinion for the
expected changes has been reflected.

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Contents
Introduction......................................................................................................................................3
About company............................................................................................................................3
Explanation of the elements of the Master Budget..........................................................................4
Master budget..............................................................................................................................4
Elements of master budget.......................................................................................................4
Budgeting approaches......................................................................................................................7
Comparison of top-down and bottom-up approach.....................................................................9
Budgeting.................................................................................................................................9
Goal setting..............................................................................................................................9
Business forecasting................................................................................................................9
Securities and company analysis...........................................................................................10
Historical data........................................................................................................................10
Pros and cons.............................................................................................................................10
Suitable approach for the company...........................................................................................11
Budgeted income statement for the year 2019..............................................................................11
Opinion on the changes.............................................................................................................13
Conclusion.....................................................................................................................................15
References......................................................................................................................................16

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Introduction
The purpose of the report is to comment and share the opinion on the budgeted income statement
for the financial year 2019 that is based on the data of 2018 of the selected ASX Company. The
company that has been selected for the analysis is Asian American medical group limited. The
paper includes the explanation of the elements of the master budget, with the discussion of the
top-down and bottom-up approach which is important for the budget process. Along with this,
the budget approach which is most suitable for the Asian American medical group limited is
explained with the proper justification. Along with this, the income statement for the year 2019
has been prepared that is based on the year 2018. The 2019 income statement is based on the
changes which are required to be done by the company. In the end, the opinion on the changes
has been stated comparing the actual as well as the budgeted income statement.
About company
Asian American Medial Group Limited offers specialized media services in the market of
Singapore and across the different parts of the world. The company operates the business
majorly in Liver, Radiation and Oncology, Healthcare Management and Consultancy, and
Healthcare Real Estate segments (AAMG, 2018). The vision of the company is to develop
AAMG into an international healthcare brand through organic growth and geographical
expansion. Along with this, the mission of the company is to offer excellent multi-disciplinary
medical care with the help of technological innovation, excellence and patient-centric care
(AAMG, 2018). The company has some values on the basis of which they manage their business
operations which include excellence, integrity, innovation, compassion, transparency.

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Explanation of the elements of the Master Budget
Master budget
The master budget is the aggregation of the different and numerous lower level budgets that are
majorly produced by a company’s different functional areas. Along with this, the master budget
includes the budgeted financial statement, forecasting the cash and making the financial plan. In
simple words, the master budget is considered as the set of interconnected budgets related to the
purchases, production cost, sales and incomes (Accounting tools, 2018). The companies in the
competitive world make prepare the master budget with the motive to serve the effective
planning and control of management.
Elements of the master budget
The master budget has two major sections which are financial budget and the operational budget.
The below given are some of the elements of the master budget: -
Operational Budget
 Production budget
 Sales budget
 Direct labour budget
 Overhead Budget
 Direct Material Purchases Budget
 Cost of Goods Manufactured Budget
 Selling and Administrative Expenses Budget
Financial Budget

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 Budgeted Balance Sheet
 Cash Budget
 Budgeted Income Statement
The below given is the detailed description of the important and types of elements that are
explained below: -
Sales budget: - Sales budget is considered as an essential budget which is used by the company
while preparing the master budget. The sales budget predicts or estimates about the sales in the
units as well as the probable earning from the sales (Ashe-Edmunds, 2019). This budget assists
the company in tracking the process which will ultimately bring the improvement in the
performance. This budget not only creates an impact on the master budget but it also affects the
operating budgets.
Production budget: - The budget related to the production assist in calculating the number of
units of the goods and products that are required to be manufactured by the company. This
budget is derived from the combination of the forecasting of sales as well as the planned amount
of the final goods inventory (Accounting tools, 2018). This has been found that the production
budget is typically presented majorly on the monthly as well as quarterly format. The basic
calculation which is used majorly by the company is given below: -
+ Prediction related to unit sales
+ Planned finished goods ending with the inventory balance
= Total production required

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This calculation helps the company in preparing the production budget which is further used by
the company.
Cash budget: - Cash budget is a written assessment that is related to the organisation’s future
cash position. This budget helps the company in estimating the cash receipts from various
sources which include cash disbursement for the numerous purposes (Cox, 2010). This has been
found cash budget is prepared on the monthly basis by the company. Cash budget includes all the
expected inflows of cash which majorly include income and non-income sources like receipts
from the sales of the bonds and stocks and the receipts from the sale of the fixed assets. the
estimation of the cash budget majorly include: -
 The estimation of the cash inflows
 The prediction of cash outflows
 The forecasting of the balance of cash (Tanwar, 2017)
Direct Material Purchases Budget: - The budget of the direct material that reflects the
prediction of the beginning and ending the inventory of the direct material. This has been found
that the quantity of the direct material will be used in the production and the amount of the direct
material must be purchased (Pilbeam, 2018). The companies majorly make use of this budget
with the motive to analyse the amount that they are going to invest while purchasing the direct
material which will be used at the time of production. The calculation of the direct material
purchase is stated below with the formula: -
Budgeted direct material purchases in units
= Forecasted beginning direct material in units
+ Direct material in units that are required for manufacturing

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- Budgeted ending the direct material in units.
After calculating the direct material, the budget of the direct material is prepared which will be
further used for preparing the master budget. Thus, this has been found that direct material
budget is required for the calculation of the master budget.
Direct labour budget: - The budget is considered as one of the crucial budgets which will help
the company in estimated the labour hours that the company will need in the near future. The
need for labour is estimated by the company so that they can hire employees which will help
them in performing manufacturing activities effectively (Trotman and Carson, 2018). This is the
major reason due to which the company estimate the amount that they will pay to the labours that
are working with the company. This amount that is predicted will be used by the company while
preparing the master budget of the organisation.
The above analysis shows the discussion of the important budgets that are required to be
considered by the company while preparing the master budget. The master budget includes the
involvement of the major budgets which are required for preparing the master budget.
Budgeting approaches
The top-down and bottom-up approach are considered as a major approach which is used by the
company at the time of preparing the budgets. This has been found that these approaches are the
two popular approaches that are majorly used by the company with the motive to measure the
operational risk (Warren, Reeve and Duchac, 2013). The operations are considered a type of risk
that can arise due to the failures in the operations which majorly include the mismanagement or
technical failures that might be faced by the company. These are considered as an important
process of budgets which are discussed below: -

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Top down budgeting approach
This method of budgeting is considered as the important method in which the senior or the top
management of the company prepare the high-level of budgets. The top-level management
prepares the budget and later the amount is allocated to the individual departments of the
company who perform different functions so that they can easily create the detailed budget with
their allocation (Chandana, 2017). The approach is majorly used by the company who are
indulging in the operations in which tough decisions are required for example; mining
companies, chemical industries and many others.
Bottom-up budgeting approach
Bottom-up budgeting is a different approach which is used by the company in which the budgets
are prepared by a different department at their own levels. The departments prepare their own
budgets in which they plan and assign the cost to every project and then send the budget from the
approval of the higher management (KolaKowski, 2018). This has been found that in the
approach the top level management approves the budget after analysing the allocation of cost and
goals of the organisation with the budget. Companies whose operations are complex because of
the large number of business units don’t make use of the top-down approach because it becomes
difficult for the company to fetch all the details while preparing the budget. This becomes
complex for the company to fetch the details from the different business units before preparing
the budget.
Comparison of a top-down and bottom-up approach
The comparison of the top-down and bottom-up approach is explained below: -

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Budgeting
In the corporate budgeting, a top-down approach initiated by setting the limits of spending that is
done at the high level of aggregation like total spending for the company as whole and possible
also for the total spending for the every line item of the expenses in its accounting hierarchy
(Weygandt, Kimmel and Kieso, 2015). Though, on the other hand, the bottom-up method is
considered as more likely to be underway with the departments or reporting units for making
their own spending wish lists that are broken out by the line item of the expense.
Goal setting
The goal setting is considered as one of the important element that is required to be considered
while comparing the approach of budgeting (KolaKowski, 2018). The top level management is
supposed to set the wide goals for the revenue and other key metrics while preparing the budget.
Though, parallel to this, the bottom-up process says that the departments and different business
units will include their own plans and targets. This has been found that generally in the bottom-
up method the managers get a bias towards the underestimating the revenue as well as the
expenses with the headcount requirements.
Business forecasting
This has been found that in the business forecasting, the sales of the company can be forecasted
initiating the broad categories of the different products or components. Along with this, the
process might get generated with the detail by the factors which majorly include the sales
channel, geographic sales regions and the specific customers (Wildavsky, 2017). Contrasting
this, the bottom-up approach begins with the projection for every specific product or the
components.

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Securities and company analysis
In the top-down budget, the top level management analyses or predict the results of the company
which majorly include the use of the macroeconomic indicators to forecast the total sales and
profits. On the other hand, the bottom-up approach helps in forming the company total
estimation of the specific products, lines of products which majorly include divisions of business
(Hilton and Platt, 2013).
Historical data
This has been found that the major difference is the use of historical data. Top-down approach
majorly makes use of the historical data to make the prediction in the budget as this is the only
way through which they can set the future goals which can be used by the departments for the
purpose of achieving the organisational goals. Though, this has been found that the bottom-up
approach doesn’t rely on the historical data. The departments prepare the budget on the basis of
the current situation and they don’t consider previous data which leads to the differences in the
allocation of the cost and resources.
Pros and cons
The top-down budgeting and forecasting methods might have the greater potential accuracy
related to the large aggregates which is considered by the firms while making the budgets. On
the other hand, a bottom-up approach might have the different errors that accumulate as one roll
up as results to the larger totals.
This has been found that the top-down approach is considered as the investment strategy that
selects the different sector and industries with the motive to maintain the investment portfolio.
Though, on the other hand, the bottom-up approach is a strategy of investment which majorly

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relies on the selection of the different individual stocks. The major disadvantage of the top-down
approach is that it doesn’t provide the employees with a chance to prepare the budget (Garrison,
Noreen, Brewer and McGowan, 2010). This doesn’t improve the skills of the employees and the
development. This has been found that the disadvantage is also present in the bottom-up
approach which includes that the departments don’t consider the organisation views for the goals
while preparing the budget.
A suitable approach for the company
Asian American Medial Group Limited is a growing company in the medical services and they
are expanding their business across the different parts of the world. From the above analysis, it is
suggested to the company to apply the top-down approach in which the senior management of
the company will make the budget for all the departments of the company. The reason behind
suggesting the top-down approach is that it will help the company to prepare accurate objectives
which are essential to be fulfilled by the company (Kaplan and Atkinson, 2015). Moreover,
AAMG operations are critical due to which the company can’t leave the objectives in the hand of
the employees as they will make the budget according to their perception.
The budgeted income statement for the year 2019
The budgeted income statement of the company for the year 2019 has been prepared for the
Asian American Medical Group Limited. The major changes that are reflected in the budgeted
income statement are related to sales, cost of goods sold and expenses of the company (AAMG,
2018). The below given is the actual and budgeted income statement with the variance and
change in % which is calculated with the motive to understand the changes that might take place.
Asian American Medical Group Limited

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Particulars
Consolidated
Group
Actual Budgeted Variance
Change in
%
2018 2019
S$ S$
Revenue 17,477,029.00 19,224,731.90 (1,747,702.90) -10%
Other operating income 404,903.00 445,393.30 (40,490.30) -10%
Changes in inventories 25,207.00 27,223.56 (2,016.56) -8%
Raw materials and
consumables used (10,388,161.00) (11,219,213.88) 831,052.88 -8%
Employee benefits expense (5,476,572.00) (5,586,103.44) 109,531.44 -2%
Depreciation (46,062.00) (46,983.24) 921.24 -2%
Directors’ fees (79,176.00) (80,759.52) 1,583.52 -2%
Recovery of doubtful debts - - -
Write-off of goodwill - - -
Gain on purchase 1,560,772.00 - 1,560,772.00 100%
Operating lease expense (562,090.00) (573,331.80) 11,241.80 -2%
Other expenses (1,021,315.00) (1,041,741.30) 20,426.30 -2%
The share of results of
associates 2,417.00 2,417.00 - 0%
Profit/ (Loss) before
income tax 1,896,952.00 1,151,632.58 745,319.42 39%
Income tax benefit/
(expense) 169,886.00 173,283.72 (3,397.72) -2%
Profit/ (Loss) after income
tax 2,066,838.00 1,324,916.30 741,921.70 36%
-
Other comprehensive
income -
Items that may be
reclassified to Profit or
Loss: -

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The net effect of foreign
currency translation (963,095.00) - (963,095.00) 100%
Total comprehensive
profit/ (loss) for the year 1,103,743.00 1,324,916.30 (221,173.30) -20%
Note: It has been found that gain in purchase item is an extra item which cannot be predicted
while preparing the budgeted income statement of the company due to which it is kept as 0.
The share of results of associates remains unchanged as this cannot be predicted for the
budgeted year.
The net effect of foreign currency translation can’t be predicted for the budgeted year due to
which it has been kept 0.
It is assumed that the other operating income of the company will increase due to which it has
been projected to increase by 10% as there is no adjustment given for the same.
Opinion on the changes
The major changes that are evident in the actual and budgeted income statement of the company
include in the profit. This has been found that the profit of Asian American Medical Group
limited is reflecting approx. 39% of the change which means that the profit of the company is
expected to decrease. This might happen because of the Gain on purchase element which was
earned by the company in the year 2018 and can’t be predicted for the year 2019. Along with
this, this can be said that it is the additional amount which is received by the company from the
different sources which can’t be predicted in the coming year.
Further, this can be said that the company should put in efforts to earn the amount from the
different sources which are possible with the proper investment by the company (Noreen, Brewer
and Garrison, 2014). In the budgeted year, this has been found that sales of the company will
increase with the rise in expenses due to which the company should properly focus on the
allocation of the resources and cost. AAMG Company should effectively make use of the
resources within the company so that they can save the amount for the near future.

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Conclusion
In the end, this can be concluded that the report includes the budget formation by the companies
in the competitive environment. The report includes the discussion related to the master budget
with the elements of the master budget which contribute in preparing the budget of the company.
The major elements of the master budget are discussed in the report and different approaches of
budgeting are evaluated. The comparison of the approaches has been done for analysing that
which budget is appropriate for the AAMG. Further, the selected company that is AAMG
income statement of the year 2018 has been captured to prepare the budgeted income statement
for the year 2019. Further, the report includes the opinion on changes that have been witnessed in
the actual and budgeted income statement.

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References
AAMG (2018) Asian American Medical Group Limited [Online]. Available from:
https://www.aamg.co/wp-content/uploads/2018/10/AAMG-Appn-4E-final.pdf [Accessed on 29th
January 2018]
AAMG (2018) Financial Info [Online]. Available from: https://www.aamg.co/investor-
relations/financial-info/ [Accessed on 29th January 2018]
AAMG (2018) Vision, Mission & Values [Online]. Available from: https://www.aamg.co/about-
us-2/vision-mission-and-values/ [Accessed on 29th January 2018]
Accounting tools (2018) Master Budget [Online]. Available from:
https://www.accountingtools.com/articles/2017/5/14/master-budget [Accessed on 29th January
2018]
Accounting tools (2018). Production Budget. [Online]. Available from:
https://www.accountingtools.com/articles/2017/5/15/production-budget [Accessed on 29th
January 2018]
Ashe-Edmunds, S. (2019) Major Components of a Master Budget [Online]. Available from:
https://smallbusiness.chron.com/major-components-master-budget-59414.html [Accessed on 29th
January 2018]
Chandana (2017) Top-down Approach Vs. Bottom-up Approach [Online]. Available from:
https://www.simplilearn.com/top-down-approach-vs-bottom-up-approach-article [Accessed on
29th January 2018]

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Cox, P. (2010) The Master Budget project: detailed analysis. Strategic Finance, 92(4), 62.
Garrison, R.H., Noreen, E.W., Brewer, P.C. and McGowan, A. (2010) Managerial
accounting. Issues in Accounting Education, 25(4), pp.792-793.
Hilton, R.W. and Platt, D.E. (2013) Managerial accounting: creating value in a dynamic
business environment. New York: McGraw-Hill Education.
Kaplan, R.S. and Atkinson, A.A. (2015) Advanced management accounting. PHI Learning.
KolaKowski, M. (2018) Top-Down Versus Bottom-Up [Online]. Available from:
https://www.investopedia.com/articles/investing/030116/topdown-vs-bottomup.asp [Accessed on
29th January 2018]
KolaKowski, M. (2018) What Is Bottom-Up Budgeting and Forecasting? [Online]. Available
from: https://www.thebalancecareers.com/bottom-up-budgeting-and-forecasting-1286959
[Accessed on 29th January 2018]
Noreen, E.W., Brewer, P.C. and Garrison, R.H. (2014) Managerial accounting for managers.
New York: McGraw-Hill/Irwin.
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[Online]. Available from: http://www.yourarticlelibrary.com/accounting/cash-budget/cash-
budget-meaning-objectives-and-utility-financial-management/71710 [Accessed on 29th January
2018]

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Trotman, K., and Carson, E. (2018) Financial accounting: an integrated approach. AU:
Cengage.
Warren, C., Reeve, J. M., and Duchac, J. (2013) Financial & managerial accounting. Chicago:
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