MANAGERIAL ACCOUNTING Format of the Report: COMPULSORY FOLLOW THE CRITERIA 1. You should at least have the following details: a. Assignment Cover page clearly stating your name and student number b. A...

MANAGERIAL ACCOUNTING
Executive Summary
This assignment deals with the concept of managerial accounting. The budgeted income statement of Australian Financial Group Limited for the year 2019 has been preparing using the required estimations. The master budget has been explained in detail in the initial part of the assignment. The top down and bottom up approach has been explained. The budgeted income statement has been prepared for the year 2019. Due comparison of the actual income statement of 2018 and the budgeted income, statement for 2019 has been to done to ensure the effectives and realistic approach of the budget. Due care has been taken to ensure the accuracy of the budgeted income statement for the year 2019. 
Table of Contents
Introduction    3
a) Explanation of the Master budget    3
) Comparison of top down and bottom down approach to budget process    4
c) Budgeted income statement for 2019    4
d) Comparison of actual income statement of 2018 and budgeted statement for 2019.    8
Conclusion    9
References    11
Introduction
Australian Finance Group is a financial institution involved in financing residential and commercial spaces. It also deals in lending and issuing of securities. The company has been performing well in the past few years. The annual report for the year 2018 has been released by the organisation. This assignment deals with preparation of a budgeted income statement for the year 2019. Budget is a detailed list of planned incomes and expenditure of the company for a given period. The comparison of the budgeted and actual figure is also important to ensure the effectiveness of the budget. This assignment contains preparation of budgeted keeping various constraints in mind. The same has been compared with actual figures of 2018 to identify the differences in terms of number as well as percentage.
a) Explanation of the Master budget
According to the opinion of Craig et al. (2017), a master budget is a tool used by the managers to provide a snapshot of the expected income and expense for a period. The major components of budgeted income statement of a financial institution involve revenue from core operations. In the given scenario, the core operations of the firm are the revenue from financing residential and commercial spaces. Securitisation interest income is another core source of revenue for the business. In the past few years, the quality of lending of the company has improved rapidly indicating a rapid increase in the volume and quality of lending. The operating expense of the company includes commission to the
okers, interest to be paid on securities and others. The other income includes the sources that are not the core revenue generating activities of the firm. The license fee of the software, fees for services provided and the income from professional indemnity insurance are the other sources of revenue for the organisation.
The expenses section of the company includes the list of expenses that will be incu
ed throughout the year. Administration expense forms an integral part of the total expense in a service industry. Based on the last year trend, major expenses of the company include employee expenses and information technology expense. The operating lease cost, advertising and promotion cost, consultancy and professional fees are also the cost to the company. The employee cost consists of around 70% of the total operating cost. According to the views of Afonso et al. (2018), depreciation and amortisation expense also form a significant part of the expenses.
The residual part after deduction of operating expenses is the result from operating activities. Few adjustments are required to be made to a
ive at Profit before tax. Finance income, finance expense and share of profit in associate are the adjustments required to be made to a
ive at profit before tax. Income tax is then deducted to a
ive at the profit of the firm. The same is divided among the shareholders and the individuals having non-controlling interest in the company. The earnings per share are computed by dividing the earnings of shareholders from the outstanding number of shares.
) Comparison of top down and bottom down approach to budget process
As per the perspective of Wang et al (2016), the top down budgeting process is a budgeting process, in which the senior management prepares a budget for the organisation. Only the senior management is involved in the process of budgeting. The lower level employees are not considered in the process of budgeting. This is suitable for organisations that have high complexity in the process. On the other hand, the bottom up approach is the budgeting process, in which all the members of the organisation are consulted while preparation of budget. In this process, the views of the lower level employee are considered. As the lower level employees are directly involved in the process of customer interaction, sales and other operation. According to the opinion of Grishunin and Suloeva (2015), the senior level management takes into account the views of all the members of the organisation. This ensures that the budget suits the requirement of all the members of the organisation. In the modern era, bottom-up approach is followed by most of the organisation. It leads to a sense of involvement among the lower level employees.
In the top down approach the orders of the senior level manager is required to be followed by the organisation. However, in case of bottom up approach of budgeting, the issues and suggestions of the lower level employees are taken into consideration for the preparation of the budgets. As the lower level employees are directly involved in operations of the company, the same are in a better position to provide suggestions regarding the quality of service, product and the response of the customers. According to the views of Derfuss (2016), the budgets are prepared for allocation of expense and income. The allocation of expenses affects the spending pattern of the company. Therefore, in case of bottom up approach, the spending ensures that the due issues are taken into consideration.
c) Budgeted income statement for...