1. BUDGET AS PLANNING & CONTROLLING TOOL
SALES BUDGET PREPARATION
Sale forecast & Production budget
OTHER ANCILLARY POLICY ISSUES DETERMINATION
Finished goods level
Materials ending inventory
Production cost budget

2. FUNCTIONAL BUDGETS
NEGOTIATION
MASTER BUDGET OR CORPORATE BUDGET
FINALIZATION OF BUDGET & IMPLEMENTATION
CONTROLLING STAGE

3. VARIANCE ANALYSIS
Difference between actual and budgeted numbers is known as variance.
INVESTIGATION

4. PURPOSE & OBJECTIVES OF BUDGET
Path to achieve the corporate objectives
Compel Planning
Increased Responsibility Accounting
Ensures Control
Increased Coordination
Source of Motivation
11:25 to 16:00

5. A statement that incorporates both inflows and outflows.
CASH BUDGETS
A statement that incorporates both inflows and outflows.
Based on the timings of each component.
16:10

6. COMPONENTS OF CASH BUDGET
Non-cash items are not considered.
Every item involving cash is included and considered.
Example: Depreciation is a non-cash items.
Accruals are not taken into cash budgets.
Profits and losses are not related to cash budgets.
Above all the essence of cash budget is the timing of occurrence of every line item.
22:15

7. EXAMPLE
M/S Hi Land Ltd is in the process of preparing cash budget for the 1st quarter of The following information is available:
Opening cash balance is Rs. 2,000/-
Forecast sales are Rs 50,000/- each for Nov. 06 to Jan. 07 and Rs. 65,000 per month for Feb. & Mar. 07.
80% sales is on credit basis and 20% on cash.

8. Debtors pay after two months from the sale date.
Materials cost will be Rs. 34,000/- for Nov. & Dec. 07 & Rs. 35,000/-, Rs. 36,000/- & Rs. 37,000/- for Jan to Mar. 07 respectively.
Creditors are paid after one month.
Electricity bill is paid in following month. Dec to Mar. expense is estimated at Rs. 6,000 per month.
Recurring expense will be Rs. 4,000 per month for Nov. & Dec. 06 and Rs. 6,000, Rs 9000 & Rs. 12,000 for Jan. to Mar. 07 and are paid in the month of incurrence.

9. A new assets will be purchased in Jan 07 for Rs. 12,000/-
A new assets will be purchased in Jan 07 for Rs. 12,000/-. payment will be made in Feb. 07.
An old assets will be disposed off in January for Rs. 1,000/- and the receipt will hit the bank on first of February 07.
Required:
Prepare the cash budget for the first quarter of year 2007 and provide your feedback to the management.

10. SOLUTION CASH BUDGET Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 INFLOWS Rs.
Nov-06
Dec-06
Jan-07
Feb-07
Mar-07
INFLOWS
Rs.
TOTAL SALES
50,000.00
65,000.00
SALES - CREDIT 80%
40,000.00
SALES - CASH 20%
10,000.00
13,000.00
SALES INFLOW
53,000.00
OTHER RECEIPTS
SALE OF ASSET -
1,000.00
TOTAL INFLOWS
54,000.00
OUTFLOWS
MATERIALS COST
34,000.00
35,000.00
36,000.00
CREDITORS PAYMENT
ELECTRICITY
6,000.00
RECURRING EXP
9,000.00
12,000.00
CAPITAL PAYMENTS
46,000.00
62,000.00
NET CASH FLOW
4,000.00
(8,000.00)
(1,000.00)
OPENING CASH
2,000.00
(2,000.00)
ENDING CASH
(3,000.00)

11. CASH FLOW STATEMENT
This statement is governed by International Accounting Standard 07.
Purpose of Cash Flow Statement is to provide information about the inflows and outflows of cash and cash equivalents.
Cash And Cash Equivalent has two characteristics:
The inflows and outflows are grouped into three categories.
both readily convertible into cash
without loss of value

12. CASH FLOW STATEMENT IS DIVIDED INTO THREE CATEGORIES
OPERATING ACTIVITIES
INVESTING ACTIVITIES
FINANCING ACTIVITIES

13. PURPOSE OF CASH FLOW STATEMENT
To identify and assess the ability to generate future net cash flow from operations to pay debt, interest and dividends
External financing requirements.
To see the effects of cash & non cash investing and financing transactions.
Assess the reasons for differences between income and associated cash receipts and payments.

14. METHODS OF PREPARING CASH FLOW STATEMENT
COMPLIANCE OF IAS 07:
DIRECT METHOD – BENCHMARK
INDIRECT METHOD – ALLOWED ALTERNATIVE

15. EXAMPLE: INDIRECT METHOD
HI LAND LIMITED
INCOME STATEMENT
For the year Ended December 31, 2005
 Rs.
SALES
290,000.00
Less
COST OF SALES
174,000.00
GROSS MARGIN
116,000.00
OPERATING EXP
Administrative Exp
45,000.00
Selling & Marketing
20,900.00
Depreciation
13,000.00
Interest Exp
15,400.00
Gain on Sale of Land
2,500.00
Profit before taxes
24,200.00
Provision for taxes
9,700.00
Net Income
14,500.00

16. HI LAND LIMITED
BALANCE SHEET
AS ON DECEMBER 31, 2005
2005
2004
Fixed Assets
Land
148,400.00
100,000.00
Buildings
465,000.00
415,000.00
Less: Accumulated Depreciation
(217,000.00)
(205,000.00)
396,400.00
310,000.00
Intangible Assets:
Patents
5,000.00
6,000.00
CURRENT ASSETS
Inventory
175,000.00
153,000.00
Accounts Receivable
109,000.00
90,000.00
Prepaid Expenses
15,500.00
17,000.00
Cash & Bank
50,000.00
55,000.00
349,500.00
315,000.00
Investment - Land -
27,500.00
TOTAL ASSETS
750,900.00
658,500.00
CURRENT LIABILITIES
Accounts Payable
69,000.00
75,000.00
Accrued Liabilities
24,500.00
20,000.00
93,500.00
95,000.00
Long Term Liabilities:
Bonds
200,000.00
Premium on Bonds
29,400.00
30,000.00
229,400.00
230,000.00
TOTAL LIBILITIES
322,900.00
325,000.00
SHAREHOLDERS' EQUITY
Share Capital
335,500.00
255,500.00
Retained Earnings
92,500.00
78,000.00
Total Equity
428,000.00
333,500.00
TOTAL LAIBILITIES & EQUITY

17. For the Year Ended December 31, 2005
HI LAND LIMITED
CASH FLOW STATEMENT
For the Year Ended December 31, 2005
(INDIRECT METHOD) A
CASH FLOW FROM OPERATING ACTIVITIES
Rs.
Net Income
14,500.00
Adjustment for Non-Cash items:
Add
Depreciation and Amortization
13,000.00
Gain on Sale of Land
(2,500.00)
Operating profit before working capital changes
25,000.00
Change in working capital
Increase in Inventory
(22,000.00)
Increase in Accounts Receivable
(19,000.00)
Decrease in Prepaid Expenses
1,500.00
Decrease in Accounts Payable
(6,000.00)
Increase in Accrued Liabilities
4,500.00
Decrease in Amortization of Bond Premium
(600.00)
Cash Generated from operations
(16,600.00)