Accounting For Management

Cover
Half Title
Author’s Profile
Title
Copyright
Dedication
Foreword
Preface
Acknowledgements
Contents
1. Management Accounting: An Overview
	1.1 What is Accounting?
	1.2 Bookkeeping vs. Accounting
	1.3 Users of the Accounting System (Internal and External)
	1.4 Different Types of Accounting Activities
	Chapter at a Glance
	Questions for Self-Assessment
2. Basic Concepts and Conventions; and Generally Accepted Accounting Principles
	2.1 Rationale behind Basic Concepts and Conventions
	2.2 Historical Perspective
	2.3 Basic Concepts and Conventions
	Chapter at a Glance
	Questions for Self-Assessment
	Appendix 2.1: International Financial Reporting Standards (IFRSs)
3. Financial Statements: A Brief Introduction
	3.1 Management Accounting and Financial Management—A Comparison
	3.2 Components of Financial Statements
	3.3 Format of Balance Sheet
	Chapter at a Glance
	Questions for Self-Assessment
4. Balance Sheet: Some Terminologies
	4.1 Liabilities (Sources of Funds)
	4.2 Equity Share (Ordinary Share) Capital
	4.3 Some Other Terminologies, Pertaining to the Share Capital
	4.4 More Terminology
	4.5 Preference Share Capital
	4.6 Reserves and Surplus
	4.7 Secured Loans
	4.8 Equitable Mortgage
	4.9 Unsecured Loans
	4.10 Current Liabilities and Provisions
	4.11 Assets (Uses or Application of Funds)
	4.12 Fixed Assets
	4.13 Investments
	4.14 Current Assets
	4.15 Miscellaneous Expenses and Losses
	Chapter at a Glance
	Questions for Self-Assessment
	Problems
5. Profi t and Loss Account
	5.1 Items Reported in Profi t and Loss Account
	5.2 Terms Used in Profi t and Loss Account
	5.3 Profi t and Loss Appropriation Account
	5.4 Cash Profi t
	Chapter at a Glance
	Questions for Self-Assessment
6. Mechanics of Accounting: For Preparation of Financial Statements
	6.1 Accounting Mechanism—Steps and Stages
	6.2 ‘T’ Accounts: Ledger
	6.3 Rules Pertaining to Recording of Business Transactions
	6.4 Revenues and Expenses and Owners’ Equity Account
	6.5 Balancing Mechanism for ‘T’ Accounts
	6.6 Books of Original Entries
	6.7 Trial Balance
	Chapter at a Glance
	Questions for Self-Assessment
	Problems
7. Revenue Recognition and Measurement
	7.1 Recognition of Revenue
	7.2 Recognition at the Time of Sale
	7.3 Recognition at the Time when the Sale Proceeds are Received
	7.4 Recognition at the Time when the Product or Project is Completed
	7.5 Proportionately, Spread Over the Period of Performance of Contracts
	Chapter at a Glance
	Questions for Self-Assessment
	Problems
8. Matching of Revenues and Expenses
	8.1 Different Categories of Stocks of Inventories
	8.2 Different Categories of Manufacturing Costs
	8.3 Computation of Manufacturing Costs
	Chapter at a Glance
	Questions for Self-Assessment
9. Inventory Pricing and Valuation
	9.1 Issues Involved in Valuation of Inventories
	9.2 Three Main Methods of Valuation of Inventories
	9.3 Principles Pertaining to Valuation of Inventories
	9.4 FIFO and LIFO Methods of Inventory Valuation: A Comparison
	Chapter at a Glance
	Questions for Self-Assessment
	Problems
10. Fixed Assets and Depreciation Accounting
	10.1 What Constitutes a Fixed Asset?
	10.2 Capitalisation of Cost and Incidental Expenses
	10.3 Disclosures
	10.4 Depreciation
	10.5 Confusion Relating to the Nature of Depreciation Expenses
	10.6 Methods of Computing Depreciation
	Chapter at a Glance
	Questions for Self-Assessment
	Problems
11. Intangible Assets
	11.1 Classifi cation of Intangible Assets
	11.2 Valuation of ‘Rights’ and ‘Acquired Goodwill’
	11.3 Accounting Treatment of Research and Development Costs
	Chapter at a Glance
	Questions for Self-Assessment
12. Evaluation of Financial Performance Through Ratio Analysis Technique
	12.1 Reclassifi cation of Assets and Liabilities
	12.2 Computation of Ratios
	12.3 Analysis and Interpretation of the Ratios
	12.4 Evaluation of Financial Performance through Ratio Analysis Technique
	Chapter at a Glance
	Questions for Self-Assessment
13. Evaluation of Financial Performance Through Ratio Analysis Technique: Case Studies, with Suggested Approaches
	Case Study 1: Majestic Motors Limited (MML)
	Majestic Motors Limited (MML): A Suggested Approach to the Case Study
	Case Study 2: Exim Corporation Limited (ECL)
	Exim Corporation Limited (ECL): A Suggested Approach to the Case Study
14. Sources and Application (Uses) of Funds Statements: Analysis and Interpretation
	14.1 What are the Sources and Application of Funds?
	14.2 Why should We Exclude Cash?
		Case Study 1: Swastik Synthetics Limited (SSL)
		Case Study 2: Pilot Plies Limited (PPL)
		Case Study 3: Woodcraft World Limited (WWL)
	Chapter at a Glance
	Questions for Self-Assessment
	Problems
15. Auditing of Financial Statements: Some Legal Aspects
	15.1 Rationale Behind Statutory Audit of the Financial Statements
	15.2 Role and Responsibilities of the Auditors
	15.3 Legal Provisions Pertaining to Auditors
	15.4 Some Case Laws, Clarifying the Duties and Responsibilities of Auditors
	15.5 Professional Ethics of Auditors
	15.6 Roles and Responsibilities of Internal Auditors
	Chapter at a Glance
	Questions for Self-Assessment
	Problems
16. Infl ation Accounting
	16.1 Rationale Behind Infl ation Accounting
	16.2 Historical Accounting vs. Infl ation Accounting
	16.3 Effects of Infl ation on the Financial Statements
	16.4 Objectives of Infl ation Accounting
	16.5 Different Methods of Accounting and Infl ation Accounting
	16.6 Concluding Remarks
	16.7 Accounting Practices in Indian Context
	Chapter at a Glance
	Questions for Self-Assessment
17. Cost Concepts and Categorisation
	Introduction
	17.1 What is Cost?
	17.2 What are Expenses?
	17.3 What is Loss?
	17.4 Classifi cation of Costs
	17.5 Natural Classifi cation of Costs
	17.6 Some Other Costs
	17.7 Relevant Costs for Decision-making and Planning
	17.8 Costs for Control
	Chapter at a Glance
	Questions for Self-Assessment
18. Job-Order, Batch, and Contract Costing
	18.1 Job-Order Costing
	18.2 Cost Accounting Cycle and Job Cost Sheet
	18.3 Recording of Job-Costs in Accounts
	18.4 Accounting for Materials Consumed
	18.5 Accounting for Labour Involved
	18.6 Accounting for Manufacturing Overheads
	18.7 Accounting for Over-applied or Under-applied Manufacturing Overheads
	18.8 Accounting for the Completed Jobs
	18.9 Accounting for Non-Manufacturing Costs
	18.10 Job-Order Costing System in Service Organisations
	18.11 Batch Costing
	18.12 Contract Costing
	18.13 Determination of Profi t in Incomplete Contracts
	18.14 Cost Plus Contracts
	Chapter at a Glance
	Questions for Self-Assessment
	Problems (With Suggested Solutions)
19. Unit Costing and Operating Costing
	Introduction
	19.1 Unit Costing
	19.2 Cost Sheet
	19.3 Bid Price
	19.4 Operating Costing
	19.5 Vehicle as a Cost Centre
	19.6 Ratio Analysis Technique
	Chapter at a Glance
	Questions for Self-Assessment
	Problems
20. Activity Based Costing (ABC)
	Introduction
	20.1 Historical Perspective
	20.2 How’s and Why’s of ABC?
	20.3 ABC in Service Industries
	20.4 Arguments against ABC
	Chapter at a Glance
	Questions for Self-Assessment
21. Variable Costing and Absorption (Full) Costing
	Introduction
	21.1 Variable Costing and Absorption Costing: A Comparison
	21.2 Advantages and Limitations of Variable Costing
	Chapter at a Glance
	Questions for Self-Assessment
	Problems
22. Relevant Costs for Decision-making
	Introduction
	22.1 Relevant vs. Irrelevant Costs
	22.2 What is Cost?
	22.3 Opportunity Costs and Outlay Costs
	22.4 Sunk Costs and Committed Costs
	22.5 Are all Past Costs Irrelevant?
	22.6 Qualitative Aspects of Decision-making
	Chapter at a Glance
	Questions for Self-Assessment
	Problems (With Suggested Solutions)
23. Contribution Analysis and Break-Even Point (BEP); or Cost-Volume-Profi t (CVP) Analysis
	23.1 Fixed Costs and Variable Costs
	23.2 Algebraic Presentation of BEP
	23.3 Arithmetical Presentation of BEP
	23.4 Various Expressions of BEP
	23.5 Some Other Uses of Contribution Analysis
	Chapter at a Glance
	Questions for Self-Assessment
	Problems (With Suggested Solutions)
24. Management and Control of Inventories
	24.1 Components and Importance of Inventories
	24.2 Economic Order Quantity (EOQ)
	24.3 Basic Economic Order Quantity (EOQ) Model
	24.4 EOQ Formula vs. Trial and Error Method
	24.5 EOQ Formula
	24.6 Economic Order Quantity (EOQ) and Optimum Order Quantity (OOQ)
	24.7 Economic Order Quantity (EOQ) and Infl ation
	24.8 Components of Inventory Carrying Costs
	24.9 Lead Time
	24.10 Order Point
	24.11 Safety Stock
	24.12 Other Variable Factors Affecting EOQ
	24.13 ABC Analysis (or VED Analysis)
	24.14 Categorisation of Items for ABC Analysis
	24.15 Inventory Control Through Ratio Analysis
	24.16 Just-In-Time (JIT) System vs. Just-In-Case (JIC) System
	24.17 Towards Evolving an Effective System for Inventory Management, Monitoring and Control
	24.18 Strategies for Achieving Success in Inventory Management and Control
	24.19 Inventory Management in India
	24.20 Rooms for Improvement—Some Suggestions
	Chapter at a Glance
	Questions for Self-Assessment
	Problems (With Suggested Solutions)
	Problems
25. Corporate Planning, Budgeting and Control
	Introduction
	25.1 Long-Range Plan (LRP) vs. Short-Range Plan (SRP)
	25.2 Performance Budgeting
	25.3 Steps and Stages
	25.4 Budgeting in a Manufacturing Company
	25.5 Per Cent of Sales Method
	25.6 Combination Method
	25.7 Pro Forma Balance Sheet
	25.8 Budgeting Process in a Manufacturing Company
	25.9 Incremental Budgeting vs. Zero-Base Budgeting (ZBB)
	25.10 Performance Monitoring and Review
	Chapter at a Glance
	Questions for Self-Assessment
	Problems
26. Capital Budgeting (Capital Investment Decisions)
	26.1 What is Capital Budgeting?
	26.2 Capital Budgeting: Why Considered so Important?
	26.3 Phases of Capital Budgeting Process
	26.4 How to Avoid the Time–Over–Runs?
	26.5 Performance Review
	26.6 Classifi cation of Projects
	26.7 Criteria of Investment Evaluation
	26.8 Some General Guiding Principles
	Chapter at a Glance
	Questions for Self-Assessment
	Problems
27. Responsibility Accounting
	Introduction
	27.1 Aims and Objectives of Responsibility Accounting
	27.2 Responsibility Centres
	27.3 Types of Responsibility Centres
	27.4 Types of Transfer Prices
	27.5 Transfer Pricing Policies
	27.6 Profi t Centre Evaluation
	27.7 Investment Centres
	27.8 Return on Investment (ROI) Analysis
	Chapter at a Glance
	Questions for Self-Assessment
	Problems (With Suggested Solutions)
	Problems
28. Cost Management and Control—Steps and Strategies
	Introduction
	28.1 Cost Control Drivers
	28.2 Value Chain
	28.3 Total Cost Management (TCM) and Business Process Re-engineering (BPR)
	28.4 TCM and TQM
	28.5 Cost Control
	28.6 Value Your Vendors
	28.7 Compare and Compete with the Best
	28.8 Flexible Manufacturing System
	28.9 Just-in-Time (JIT) vs. Just-in-Case (JIC)
	28.10 Brand Extension
	28.11 Advertisement Expenses
	28.12 Distributions and Servicing Channel
	28.13 Use of Info-Tech and I.T.
	28.14 Cut Non-Manufacturing Overheads
	28.15 Adopt Some Innovative Strategies
	28.16 Cut Cost of Human Capital
	28.17 Adopt Activity Based Costing (ABC)
	28.18 Some Key Factors for Success
	28.19 Total Cost Management in India
	Chapter at a Glance
	Questions for Self-Assessment
29. Standard Costs
	Introduction
	29.1 What Do We Mean by ‘Standards’?
	29.2 Budgets vs. Standard
	29.3 Classifi cation of Standard Costs
	29.4 How to Set Up the Cost Standards?
	29.5 Components of Standard Cost
	Chapter at a Glance
	Questions for Self-Assessment
	Problems (With Suggested Solutions)
	Problems
30. Variance Analysis: Cost Variances
	30.1 What is Variance Analysis Technique?
	30.2 Cost Variances
	30.3 Material Cost Variances (MCVs)
	30.4 Material Price Variance (MPV)
	30.5 Material Usage (Quantity) Variance
	30.6 Labour Cost Variance
	30.7 Idle Time Variance and Labour Revised Effi ciency Variance
	30.8 Overhead Variance
	30.9 Calendar Variance
	30.10 Capacity Variance
	Chapter at a Glance
	Questions for Self-Assessment
	Problems
31. Variance Analysis: Revenue and Profi t Variances
	Introduction
	31.1 Sales Variances
	31.2 Sales Revenue Variance (SRV)
	31.3 Profi t Variance
	31.4 Budgeted Profi t and Actual Profi t—A Reconciliation
	31.5 Variance Reporting
	31.6 Some Key Ratios
	31.7 The Tabular Form (Method) of Presentation
	31.8 Disposition of Variance
	Chapter at a Glance
	Questions for Self-Assessment
32. Short-Term Decision Analysis
	Introduction
	32.1 Analysis of the Framework
	32.2 Types of Relevant Costs
	32.3 Applications of Short-Term Decisions
	Chapter at a Glance
	Questions for Self-Assessment
	Problems
33. Human Resources Accounting
	Introduction
	33.1 Nature of Human Resources Accounting (HRA)
	33.2 Objectives of Human Resources Accounting (HRA)
	33.3 Advantages of Human Resources Accounting (HRA)
	33.4 Monetary Measures of (or Valuation Approaches to) the Human Resources
	33.5 Non-Monetary Measures of the Human Resources
	33.6 Models of Human Resources Accounting
	33.7 Concluding Remarks
	33.8 Some Personnel Ratios
	33.9 Personnel Reports and Audit Budgets
	33.10 Human Resources Information System (HRIS)
	Chapter at a Glance
	Questions for Self-Assessment
Bibliography
Index