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Budget

15 December 2008 317 views No Comment

Dear All

Can any body tell me that is budget only for expenses or can be for Asset, liabilities and income also. My openion is it can be for all (Asset, liability, Expense and income). Please help me according to the IAS/IFRS.

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Best regards

Mohammad

Dear Mohammed :-

Budget can be to revenue& expenses but when we put assets & liabilities we can called it Feasibility study to project we make this in starting of any activity .

Best Regards
Aly

Budgets are prepared both for revenue and capital expenditure. Revenue Budget gives you the financial progress of the company and Capital Budgets are prepared to estimate the cash flow requirements for the ensuing year and capital investment a company is proposed during the year ahead.

Budgets are different from Feasibility studies, so don’t mix-up both. Budgets of Both Capital & Revenue are a regular and annual feature, whereas feasibility studies are need based and initiated when a project is proposed or an idea for a project is conceived.

Good Luck

Agree with Mr. Sekhar & add that,

Capital and revenue budgets are usually termed as Capex & Opex respectively.
Opex are simply Profit & Loss summaries, whereas Capex are not prepared like balance sheets and are just forecast for upcoming period/s Capital expenditure, (it is not needed to present the acquisition requirement of assets – i.e. either from Equity or Loan which is a feature of Financial Management).
If, however you add the cash flows from Capex & Opex it will help you to evaluate the feasibility (IRR, Payback, NPV) which is a requirement when a project is conceived/ proposed.

Hope answer the question.

Regards,

Muhammad

I am not sure if IFRS or IAS is in anyway concerned with BUDGET…mind you BUDGET is a Cost Management Tool and a part of management accounting(cost and management accounting).

Budget is prepared to arrive at planned profit from operation…essentially there is an income assessment…Budget also is prepared for capital expenditure funding and assessment of returns during the lifecycle of the Capital asset….but truely Asset and liability budget(nomencltured so) is not in existence to my knowledge.

Regards

R.Veeraraghavan

The IFRS/IAS does not deal with budgeting at all.

To open your guestion correct budgeting process deals with P&L, ballance sheet and cashflow.

The profit from your P&L effectivelly apperas as retained profit in your ballance sheet.

Assets, liabilities and P&L are direclty correlated.

Regards,

Jakub

Hi,

When budget or any financial projection or anyother alike document forms part of prospectus of any company opting for IPO, then audit of such budget or financial projections may attract compliance of relevant IASs and IFRSs.

Similarly, while conducting due-diligence on behalf of any public-interest-entity, the firm conducting DD may evaluate whether budget or financial projections (form part of future business plan, if any) are standards compliant or not. For example, non-compliance in Opex budgets may result inadequate provisions for taxation etc. or overstatement of future profits resulting in higher business price and non-compliance in Capex budget may result in many other serious issues.

Zulfiqar

You are right in saying that budgets can be for all the items of accounting equation that is assets, liabilities, income, expenses and even some times equity.

Let me explain with some examples;

1 Assets:

You can budget, especially in a growing company how many new machines you will buy or in a real estate business, new real estate that you intend to acquire and also how many of those you anticipate will be disposed off.

As far as IAS and IFRS are concerned, although there is no specific requirement to do budgeting, in many instances disclosures are required to show what management intends to doing in the coming future which are called management’s best estimate;

2 Liabilities:

When budgeting, you also put in place the bank loans, intercompany loans, trade lines etc. that you plan to take in the coming year. The guidelines for IAS 37, provisions, contingencies and committments lays down the criteria that can be used if you are looking for some guidance on what to put in that section.

3 Equity

If the company plans to issue new shares, either being an IPO or right or bonus shares, you can show that in your budget as projected increase in equity.

4 Income & Expenses

I guess this is clear to you that you can project based on past experience and internal departmental discussions.

I hope this helps.

Zeeshan

Hi All,

I tend to agree with Zeeshan; especially if management policy is to develope a comprehensive budget. However, some management limit the budget package to revenue & capital budgeting in the normal format/way. But it’s sometimes necessary to link these tools to a set of ”forecast financial statements” in order to depict a picture of how the entity will look in terms of result and position based on the estimates made. Therefore, it depends on the level of information management will need about the future today.

The use of forcast financial statements in the budgeting process can also help management have an easy sail in the development of its forecast cashflow and the proper management of cash, debts, liabilities, etc.

William

Dear All

I totally agree with Zeeshan, the budget components should incude the all assests, liabilities, P&L accounts and a statement of cash flows.

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Hesham

Hi Mohammad,

Companies make budgets for Income, expenses, Assets and Liabilities. So you will have a budgeted Income statement, Balance sheet and Cashflow as well to check on the liquidity.

Thanks

Ragu

Dear Mohammad,

In budget making process, the 1st budget which we have to make is
Sales budget then based on this we have to make Purchase budget,then
Inventory, A/R & A/P, based on these Operating Expenses & Capital
Expenditure. In the last we have to make Cash Budget which is based
all of the above. Then keeping in view all of the above budgets we can
make the projected Financial Reports.

Regards,
Hameed

I do not recall any specific provisions as regards Budgets or Budgeting process in terms of IAS/IFRS.

Budget is basically a control mechanism and can be used for all sorts of activities involving quantitative or/and financial impact, as far as your query is concerned in specific terms, Mohd. Aamir Jawad worded the solution appropriately.

Regards

dear mohmad
i do not think that under IFRS/IAS have any provition related to the budget the reason behind is that the IFRS/IAS is for the harmonijation of the accounting policy but the budget is the internal matter of the company and it is wholy all depend on the company that how is company praparing there budget?