Mba I Accounting For Management (12mba14) Notes

Accounting for Management
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Module I Introduction to Accounting: Need and Types of Accounting, Users of Accounting, concepts and conventions of Accounting, Accounting Equations Module II Preparation of Books of Accounts: Journals, Subsidiary books, three column cash book, ledgers and trial balance Module III Preparation of Financial Statement: Preparation of final accounts of sole traders and companies (excluding partnership) in horizontal format (students are to be introduced to vertical formats also) Module IV Analysis of Financial Statements: Comparative, common size and trend analysis, Ratio Analysis, Preparation of financial statements using ratios, Cash flow Statement. Module V Accounting Standards and IFRS: IFRS and proposed changes in Indian Accounting Standards Module VI Audit Report: Audit Report, Directors Report and basics of MAOCARO 1998 (Amended 2003) Module VII Corporate Governance, Human Resource Accounting, Forensic Accounting Window Dressing Module VIII Income Tax: Income Tax Heads of Income, Salary, Profit in lieu of salary, Perquisites, deductions u/s 80C, Income Tax Rates (Only Theory)
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Index Module-1 Module-2 Module-3 Module-4 Module-5 Module-6 Module-7 Module-8 Page No. 3-10 Page No. 11-21 Page No. 21-29 Page No. 30-48 Page No. 48-50 Page No. 51-57 Page No. 58-62 Page No. 62-78
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MODULE I
Accounting Meaning
Accounting, as an information system is the process of identifying, measuring and
communicating the economic information of an organization to its users who need the information for decision-making. Accounting provides information that is useful in making business and Economic decisions for making reasoned choices among alternative uses of scarce resources in the conduct of business and economic activities.
Objectives of Accounting
To maintain Accounting records To calculate the results of operations To ascertain the financial position To communicate the information to others
To maintain Accounting records

Written records can be used by different persons for different Decision-making purposes and serve as evidence of transactions. Accounting is done to keep a systematic record of (i) financial transactions, (ii) assets and (iii) liabilities.
To calculate the results of operations

To measure the financial performance of an enterprise, the results of operations are ascertained by preparing income statement i.e. Profit & Loss A/c. and shows the matching of current costs with current revenues during a particular accounting period.
To ascertain the financial position

To evaluate the financial strength & weakness of an enterprise, the financial position is ascertained by preparing a Position Statementi.e. also called as Balance Sheet which shows resources (assets) owned by an enterprise and the sources of financing those resources.
To communicate the information to others
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Accounting communicates information to internal users and external users. Internal users: Top level Mgt. Information for planning, Middle level mgt. requires information for controlling the operations External users: Creditors, Banks and Investors need the information relating to final results of operation and financial position of a firm.
Importance or Uses of Accounting

1 2 Facilitate to replace memory Accounting facilitates replace human memory by maintaining complete record of financial transactions. Facilitates to comply with legal requirements Accounting facilitates to comply with legal requirements which require an Enterprise to maintain books of accounts. For e.g. Sec 209 of the Companies Act 1956, requires a company to maintain proper books of accounts on accrual basis. Facilitate to ascertain net results of operations Accounting facilitates to ascertain net result of operations by preparing Income Statement or P&L A/c.
4.
Facilitates to ascertain financial position Accounting facilitates to ascertain financial position by preparing Balance Sheet. 5. Facilitates the users to take decisions Accounting facilitates the users to take decisions by communicating accounting information to them. 6. Facilitates to comparative study Accounting facilitates a comparative study in the following four ways: (i) Comparison of actual figures with standard or budgeted figures for the same period and the same firm. (ii) Comparison of actual figures of one period with those of another period for the same firm (iii) Comparison of actual figures of one firm with those of another standard firm belonging to the same industry. (iv) Comparison of actual figures of one firm with those of industry to industry to whom the firm belong.
7. Assists the management

Accounting assists the management in planning and controlling business activities and in taking decision. 8. Facilitates control over assets Accounting facilitates control over assets by providing information regarding Cash balance, Bank balance, Debtors, Fixed Assets, Stock etc. 9. Facilitates the settlement of tax liability
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Accounting facilitates the settlement of tax liability with the authorities by maintaining proper books of accounts in systematic manner. 10. Acts as a legal evidence Proper books of accounts maintained in systematic manner act as a legal evidence in case of disputes.
Scope of Accounting
Accounting covers the following activities: Identifying the transactions and events Accounting identifies transactions and events of a specific firm. A transaction is an exchange in which each participant receives or gives value. An event is a happening of consequence to a firm. E.g. use of raw materials for production. Measuring the identified transactions and events Accounting measures the transaction and events in terms of a common measurement unit, that is the ruling currency of a country.
3. Recording
It is concerned with the recording of identified and measured financial transactions in an orderly manner. 4. Classifying It is concerned with the classification of the recorded transactions so as to group the transactions of similar type at one place. E.g. maintaining ledger for each type of Account. 5. Summarizing It is concerned with the summarization of the classified transactions in a manner useful to the users. E.g. Preparing P&L A/c, B/S, Cash Flow & Fund Flow Statements. Analyzing It is concerned with the establishment of relationship between the various items or group of items taken from P&L A/c & B/S or both. 7. Interpreting It is concerned with the explaining the meaning and significance of the relationship so established by the analysis. The accountants should interpret the statements in a manner useful to the users, so as to enable the users to make reasoned decisions out of alternative course of action. 8. Communicating It is concerned with the transmission of summarized, analyzed and interpreted information to the users to enable them to make reasoned decisions.
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Accounting Conventions & Concepts

Accounting Entity Concept According to this assumption, a business is treated as a separate entity that is distinct from its owner(s), and all other economic proprietors. This concept requires that for accounting purposes a distinction should be made between (i) personal transactions and business transactions, and (ii) transactions of one business entity and those of another business entity. 2. Money measurement Concept According to this concept, only those transactions which are capable of being expressed in term of money are included in the accounting records. Non-monetary transactions should be ignored.
E.g. Guarantee given by bank, Strikes, Lockouts, Layoff etc.
3. Accounting Period Concept According to this concept, the economic life of an enterprise is artificially split into periodic intervals which are known as accounting periods at the end of which an income statement and position statement are prepared to show the performance and financial position. 4. Going Concern Concept According to this concept, the enterprise is normally viewed as a going concern, that is, continuing in operation for the foreseeable future.
Generally Accepted Accounting Principles (GAAPs)

GAAPs my be defined as those rules of action or conduct which are derived from experience and practice and when they prove useful, they become accepted as principles of accounting. Criteria for acceptance of the Accounting Principles: Relevance: A principle is relevant to the extent it results in information that is meaningful and useful to the user of the accounting information. Objectivity: Objectivity connotes reliability and trustworthiness. A principle is objective to the extent the accounting information is not influenced by personal bias or judgment of those who provide it. Feasibility: A principle is feasible to the extent it can be implemented without much complexity or costs.
Basic Principles of Accounting

Duality Principle Revenue Recognition Principle
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Historical Cost Principle Matching Principle Full Disclosure Principle Objectivity Principle Consistency Principle
Duality Principle The duality aspects of transaction is the basis of double entry records. The entry made for each transaction is composed of two parts-one for debit and another for credit. Every debit has equal amount of credit. 2. Revenue Recognition Principle This principle is mainly concerned with the revenue being recognized in the Income Statement (P&L A/c) of an enterprise. Revenue is the gross inflow of cash. It includes receivable from sale of goods, rendering of services and use of enterprise resources, interests, royalties and dividends. Revenue is recognized in the period in which it is earned irrespective of the fact whether it is received or not during that period. 3. Historical Cost Principle According to this principle, an asset is ordinarily recorded in the accounting records at the price paid to acquire it at the time of its acquisition and the cost becomes the basis for the accounts during the period of acquisition and subsequent accounting periods. The cost of an asset is systematically reduced from year to year by charging depreciation and the asset is shown in the balance sheet at book value. 4. Matching Principle According to this principle, the expenses incurred in an accounting period should be matched with the revenues recognized on all goods sold during a period, cost of those goods sold should also be charged to that period. In Trial balance all debits should be matched with all credits. In B/S, assets side should be matched with liabilities side. 5. Full Disclosure Principle According to this principle, the financial statements should act as means of conveying and not concealing. The financial statements must disclosure all the relevant and reliable information. It should be full, fair and adequate so that the users can take correct assessment about the financial performance and position of the enterprise. 6. Objectivity Principle According to this principle, the accounting data should be definite, verifiable and free from bias of the accountant. This principle requires that each recorded transaction in the books of accounts should have an adequate evidence to support it. (E.g. vouchers, receipts, invoices etc.)
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7. Consistency Principle According to this principle, whatever accounting practices are selected for a given category of transactions, they should be followed continuously from one accounting year to another.
Accounting Standard
Meaning
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An accounting standard is a selected set of accounting policies or broad guidelines regarding the principles and methods to be chosen out of several alternatives. Standards conform to applicable laws, customs, usage and business environment. Objective The main objective of accounting standards is to harmonize the diverse accounting polices and practices at present in use in India.
Importance or Advantages of setting Accounting standards

2. Reduction in variations: Standards reduce to a reasonable extent or eliminate altogether confusing variances in the accounting treatment used to prepare financial statements. Disclosure beyond that required by law; There are certain areas where important information is not statutorily required to be disclosed. Standards may call for disclosure beyond that required by law. Facilitates comparison: The application of accounting standards would to a limited extent, facilitate comparison of financial statements of companies situated in different parts of the world and also of different companies situated in the same industry.
3.
Accounting Equation
The accounting equation shows the relationship between the economic resources belonging to a business and the claims against those resources. Economic resources are termed as assets. Claims are termed as liabilities and owners claims or owners equity. Assets = Liabilities + Owners equity
Users of Accounting Information

Investors Investors are the owners of the firm. So, they need information to decide which investments to buy, retain or sell as well as the timing of the purchases or sales of those investments. They also need information to assess mgt. performance and the ability of the firm to pay dividends. Lenders Lenders, such as banks and debenture-holders, need to know about the financial stability of a business who approach them for funds. They are interested in information that enables them to determine whether their loans, and the related interest, will be paid when due.
2.
3. Security Analysis and Advisers Investors and creditors seek the assistance of information specialists in assessing prospective returns. Equity and bond analysts, stock holders and credit rating agencies offer a wide array of information services. Information specialists serve the need of investors by providing them with skilled analyses and interpretation of financial reports.
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4. Management Mgt.needs information for planning and controlling operations, for making special decisions, and for formulating major plans and policies. 5. Employees and Trade Unions Employees are interested in information about the enterprise as well as its general operations, stability and profitability. Employees have an interest in the financial affairs of ; the enterprise since it is the main source of their income. Trade unions are required for wage negotiations. 6. Suppliers and Other Trade Creditors They are keen to obtain information that enables them to determine whether amounts owed to them will be paid when due. 7. Customer They are interested in the financial affairs of an enterprise to decide how much business to do with it, and to assess its ability to service the product or to honor warranty agreements. 8. Govt. & Regulatory Agencies They also require information in order to regulate the business practices of enterprises, determine taxation policies and provide a basis for national income. A number of regulatory agencies like SEBI, Insurance Regulatory Authority and Stock Exchanges have a legitimate interest in financial reports of publicly held
enterprises to ensure efficient operation of capital markets. 9. General Public

Financial statements assist the public by providing information about the trends and recent developments in the prosperity of an enterprise and the range of its activities.
Module II Preparation of books of original records Meaning & Classification of Accounts
Meaning It is a statement of the various dealings which occur between a customer and the firm. It can also be expressed as a clear and concise record of the transactions relating to a person or a firm or a property (asset) or a liability or an expense or an income. Classification of Accounts 1. Personal Accounts 2. Impersonal Accounts
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a. Real Accounts b. Nominal Accounts 1. Personal Accounts Accounts related to an individual person, firm, company and bank is called personal accounts. The proprietor being an individual his Capital A/c and his Drawing A/c are also known as Personal Accounts. 2. Real Accounts Assets or properties or trading goods related to a firm is called Real Accounts. E.g. Furniture A/c, Purchase A/c, Sales A/c. etc., 3. Nominal Accounts Any expenses incurred or incomes received other than real accounts is called Nominal Accounts. E.g. Salary for the staff, Rent paid, Commission received etc. Debit & Credit Aspects One aspect will be either the Receiving Aspect or Incoming Aspect. This is termed as Debit Aspect. Another aspect will be Giving Aspect or Outgoing Aspect or Income Aspect. This is termed as Credit Aspect. Golden Rules of Accounts: 1. Personal A/c Debit the Receiver 2. Real A/c 3. Nominal A/c Journal Journal is the book of original entry wherein transactions are first recorded. Format Below each journal entry a brief explanation of the transaction is given Narration within the brackets is called narration Procedures to enter Journal Entries 1. First find out, which two accounts belongs to a particular transaction. 2. Then find these two accounts belonging to which category i.e.Personal or Real or Nominal A/cs. 3. Then see rules of the category and match with accounts. 4. Write the journal entry with date, amount in both sides and narration.
-- Credit the Giver -- Debit what Comes in -- Credit what Goes out -- Debit all expenses & losses -- Credit all incomes & gains
Accounting for Management Example:1 Journalize the following transactions: 1. 1-11-2006 Ravi commenced his business with a 90,000. 2. 2-11-2006 3. 3-11-2006 4. 4-11-2006 5. 5-11-2006 He bought goods for cash Rs. 4,000 He deposited in IOB Bank Rs. 3,000 He gave a loan to Mr.Kumar Rs.2,000 Paid for Stationary Rs.1,000.
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capital of Rs.
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Example: 2 Journalize the following transactions: 3.02.06 Goods purchased for Rs.14,500. 7.02.06 Goods sold to Lakshmi Rs.5,000 9.02.06 Received Commission Rs.300 10.02.06 Goods sold for cash Rs.29,000 12.02.06 Goods purchased from Meenakshi for Rs.6,000 15.02.06 5 Chairs purchased from Saravana Stores Rs.300 each 20.02.06 Paid to Saravana Stores 28.02.06 Salary paid Rs.1000 Rent paid Rs.500 Example:3 (Jan 2005) Journalize the following transactions: Jan 2004, 2 Started business with Rs.1,00,000 Paid into bank Rs.50,000 4 Bought furniture for cash Rs.6,000 5 Bought furniture for resale Rs.4,000 6 Sold goods to Mr.X Rs.6,000 7 Sold goods Rs.5,000 8 Purchased from Y for Rs.5,000 9 Charged depreciation on Machinery Rs.1,000 10 Withdrew form bank Rs.3,000 for private use. 14 Deposited a cheque into bank for Rs.6,000 20 Cheque deposited on 14th Jan was dishonored 25 Paid rent, salaries, postage Rs.5,000, Rs.6,000 and Rs.150 respectively. Prob:4 (Jan 2006) Journalise the following transactions in the books of Vishwanath. i. Vishwanath started his business with the following: Cash in hand 1500 Cash at bank 3500 Goods in hand 3000 Furniture 2000 Buildings 10,000 ii. Gave charity Rs.20. iii. Loan taken from the bank Rs.5,000 iv. Purchased a motor car in exchange for goods Rs.2,000 and cheque Rs.3,000 v. Paid proprietors life insurance premium Rs.100
Accounting for Management vi. Bought goods from Laskshman on account Rs.2,000 vii. Furniture costing Rs.300 was destroyed by fire. Prob:5(June 2004) Journalise the following transactions in the books Raju and Company. 2002 Jan 2 Started the business with Rs.80,000 Jan 3 Bought furniture for Rs.12,000 Jan 6 Bought stationary for Rs.500 Feb1 Purchased goods for cash @ Rs.20,000 Feb5 Sold goods for cash worth Rs.4,000 Feb7 Sold to Mohan goods worth Rs.2,000 Feb14 Bought goods from Tilak @ Rs.8,000 Feb18 Paid office cleaning charges of Rs.200 Feb20 Bought goods from Kamalesh worth Rs.4,000 Feb21 Sold to Vishnu & Co goods worth Rs.3,000 Feb 22 Received form Mohan Rs.2,000 Feb 25 Paid to Kamalesh Rs.2,000
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Ledger
Ledger is a secondary book of entry. The journal entries are posted to the ledger at the end of each period. Ledger is a book containing various account. In this book, separate account is opened for each and every transactions of different nature. Format Dr xxx A/c Cr Procedures to post entries from Journal book to Ledger book 1. List out the no. of accounts in the journal book. 2. Open separate ledger account for each account. 3. Debit side of the entry in the journal book will come under credit side of the ledger and vice-versa 4. In debit side of the ledger book while entering the entry, add To. In credit side, add By. 5. Balance the amount in both the sides. Prob:1 1995 Mar1 Kannan commenced business with Rs.25,000 3 Purchased goods for Rs.15,000 5 Paid salary Rs.500 8 Received interest Rs.50 10 Cash Sales Rs.2,000 12 Purchased goods for cash Rs.3,000 15 Goods sold to Kumar Rs.1,000
Accounting for Management 18 Purchased a cycle for Rs.680 Trial Balance
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Trial Balance is a statement of ledger balances. In this statement four columns are provided for recording the serial number, name of accounts, debit balances and a credit balances. The total of such balances must be equal. Rules Debit : All assets, expenses & losses Credit : All liabilities, incomes & gains Format Prob:1 From the following transactions pass necessary journal entries, prepare ledger accounts and trial balance: 2003 Apl1 Started business with a capital of Rs.10,000 2 Purchased goods from Mr.Gopal for Rs.1,500 3 Paid to Mr.Gopal in full in cash Rs.1,450 4 Sold to goods Mr. Kannan for Rs.500 5 Received cash from Kannan in full settlement Rs.450 6 Paid salary Rs.300 7 Purchased furniture for Rs.1000 8 Sold goods for Rs.1,300 9 Received interest Rs.50 10 Deposited cash into bank Rs.1000 11 Paid wages Rs.100 12 Withdraw cash from Bank for personal use Rs.200
Prob:2 (Jan 2006) Prepare a trial balance from the following balances of the year ending 2002 Capital 28,000 Purchases 15,000 Stock of goods 4,000 Plant 15,000 Motor car 8,000 Furniture 5,000 Dis.recd. 400 Wages 8,200 Baddebts 400 Creditors 6,500 Sales 40,000 Salaries 2,800 Cash at bank 4,000 Commission (cr) 600 Return inwards 2,000 Returns outwards 1,000 Cash in hand 600 Debtors 5,600 Rent 3,500 General exp. 300 Dis. Allowed 300 Interest recd. 200 Carriage 1,500 Advertisement 500 Prob:3 Prepare a Trial balance from the following as on 31st Mar 2002 Rs. Capital 16,800 Drawings 5,000 Stock 21,000 Purchases 36,000 Sales 72,000 Purchase Ret. 2,000 Department of MBA/SJBIT Sales Ret. 3,000 Debtors 4,500 Creditors 2,500 Furniture 900 Bills receivable 2,300 Bills payable 4,200
Rs.
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A subsidiary book is prepared when the transactions of similar nature are large. It is prepared as a substitute for journal. By preparing this book, entries are minimized. E.g. Sales Book, Purchase Book etc. Types of Subsidiary Books 1. Purchase book 2. Sales book 3. Purchases Return book 4. Sales Return book 5. Bills Receivable book 6. Bills Payable book 7. Cash book
1. Purchase book This book is kept with the object of recording credit purchases of goods for resale. Each inward invoice after it has been entered as to calculations and also to the quantity, quality and price of the goods received is numbered consecutively and then entered in the purchase books. Format Purchase Book Postings: Each personal a/c is credited with its respective amount and the monthly total of this book is debited to purchases a/c in the Ledger. 2. Sales book The object of this book is to record credit sales. An outward invoice is made out for credit sale and checked as to quantity, quality and price of the goods before the letter is sent out to the customer. Format Sales Book Posting: Each personal a/c debited with its respective amount and the monthly total of the book is credited to sales a/c in the ledger. 3. Purchase Returns Book This book record returns outward, that is, return of goods bought. A debit note is made out with a carbon duplicate and sent to the party to whom the goods are returned. Format Purchase Returns Book Postings: Each individual personal a/c is debited with its respective amount and the monthly total of the book is credited to returns outward a/c in the ledger. 4. Sales Returns Book Return inwards, that is, return of goods sold by us, are recorded in this book. On receipt of goods, credit notes with carbon duplicates are made out and sent to those customers who have returned us the goods. Format Sales Returns Book
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Posting: Each personal a/c get the individual credit and the returns inwards account get the debit with the monthly total of the book. 5. Bills Receivable Book The purpose of this book is to keep a detailed record of all the bills receivable received by a trader. A bill receivable is one is respect of which the trader is entitled to receive money at some specific date as shown on the face of the bill. Drawer is a person who is drawing the bills. He is the supplier of the goods. Acceptor is accepting the bill. He is the purchaser of the goods. 6. Bills Payable Book This book is kept to record full details of all bills payable accepted by a trade
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A bill payable is one, which has been accepted by a person and the amount of which he is under obligation to pay at some definite future time. Cash Book A cash book is a special journal which is used for recording all cash receipts and cash payments. A cash book is a book of original entry since transactions are recorded for the first time from the source documents. The cash book is a ledger in the sense that it is designed in the form of a cash a/c and records cash receipts on the debit side and cash payments on the credit side. Types of Cash Book 1. Single Column Cash Book 2. Cash Book with Discount Column 3. Cash Book with Bank & Discount Column 4. Petty Cash Book 5. Single Column Cash Book Single column cash book has one amount column on each side. All cash receipts are recorded on the debit side and all cash payments are recorded on the credit side. Format Single Column Cash Book Dr Cr Prob:1 Enter the following transactions in Single Column Cash Book. 2001 Jan1 Cash in hand Rs.1,700 5 Paid to Bansal Rs.300 & discount allowed by him Rs.10 8 Purchased goods from Goyal & Co. for cash Rs.400 10 Received from Kansal Rs.980 16 Sold goods to Garg & Co for cash Rs.400 21 Paid to Ansal Rs. 295 & discount received Rs.5 25 Paid wages Rs.50 31 Paid to X & Co in full settlement of his account (which shows a credit balance of Rs.400.)Rs. 390 31 Purchased Furniture Rs.200 Prob:2 Prepare a simple cash book from the following transactions of Mr. X of Delhi. 2001, Apl 1 Mr.X commenced business with cash Rs.4,800 3 He bought goods for cash Rs.3,000 5 Sold goods for cash Rs.60 6 Received cash from Mr. Manohar Lal Rs.216 9 Paid into bank Rs.1,800 13 Paid cash to Hari Rs.129 16 Sold goods for cash Rs.900
Accounting for Management 17 Paid for stationary Rs.9 Paid for office furniture Rs.1110 Received from Mr. Kailash Chand Rs.408 Paid for advertising Rs.54 Purchased postage stamp Rs.5 Paid rent Rs.60 Paid electricity charges Rs.9
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2. Cash Book with Discount Column Cash book with discount column has two columns I.e cash column and discount column in each side. All cash receipts & discounts allowed are recorded on the debit side and all cash payments & discounts received are recorded on the credit side. Format Double column Cash book Dr Cr Prob:1 Prepare a double column cash book from the following transactions of Mr. R.K. Gupta: 2001 Jan1 Opening Cash balance Rs.4,000 3 Cash sales Rs.6000 5 Sold goods to Suresh for Rs.2,000 & received from him Rs.1,980. 6 Goods purchased for cash Rs.2,000 10 Wages paid Rs.40 19 Goods purchased from Mr. Manjunath Rs.2,500 and paid to him Rs.2,470 27 Cash paid to Radha Rs.400 28 Goods purchased for cash Rs.2,070
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Prob:2 Prepare a double column cash book from the following transactions of Mr. Y: 2004 Mar 1 Mr. Y commenced business with cash Rs.3,900 3 Bought goods for cash Rs.4,110 4 Paid Mr.Mohanlal cash Rs.57 and discount recd. Rs.3 6 Deposited in Bank Rs.2,400 Paid for office furniture in cash Rs.279 9 Sold goods for cash Rs.1,800 12 Paid wages in cash Rs.72 13 Paid for stationary Rs. 24 15 Sold goods fro cash Rs.1500 17 Paid for miscellaneous exps.Rs.27 19 Received cash from Mr. Jindhal Chand Rs.291 and allowed his discount Rs.9 21 Purchased a radio set Rs.150 22 Paid salary RS.240 25 Paid rent Rs54 28 Paid electricity bill Rs.21 29 Paid advertising Rs.24 31 Paid into bank Rs.1,500 3. Three Column Cash Book Three column cash book has three amount columns (one for cash, one for bank and one for discount) on each side. All cash receipts, deposits into bank and discount allowed are recorded on debit side and all cash payments, withdrawals from bank and discount received are recorded on the credit side. Format Three Column Cash Book Dr Cr Prob:1 Enter the following transactions in the Three Column Cash Book. 2005 Jan 1 Opened a bank a/c by depositing by Rs.6000 in cash 2 Goods sold to Mohan for cash Rs.250 5 Settled Haris a/c of Rs.200 at a discount of 5% 7 Received from Shyam a cheque for Rs.725. Dicount allowed Rs.25 10 Purchased a typewriter for Rs.200. Spent Rs.50 on its repairs. 12 Shyams cheque was returned dishonored 15 Received a money order for Rs.25 from Hari 20 Shyam settled his account by means of a cheque for
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Rs.755. Rs.5 being for interest charged. 27 Purchased Machinery from Rajiv for Rs.5,000 and paid him by means of a bank draft purchased from bank for Rs.5,005. 28 Cash withdrawn from the bank Rs.10,000. Prob:2(June 2004) From the following information, prepare suitable cash book: 2002, April 1 Cash at hand Rs.2,200 2 Cash at bank Rs.8,700 3 Bought goods from Rahim Rs.7,300 4 Cash sales deposited with the bank Rs.5,500 8 Sold goods to Das Rs.8,200 9 Received cheque in full settlement of Dass a/c Rs.8,000 10 Paid to settle Rahims a/c Rs.7,000 12 Purchased office furniture by cheque Rs.3,500 13 Bought goods from Ghosh Rs.10,400 15 Paid carriage Rs.200 18 Bank collected dividend Rs.500 20 Withdrawn from bank Rs.2,000 25 Paid wages Rs.1,500 27 Paid to Ghosh by cheque Rs.10,000 Prob:3 (Jan 2005) Rule the Three column cash book of a merchant and record there in the following transactions. Balance the cash book on 31st July 1998. July 1998 1 Commenced business with Rs.10,000 2 Paid into bank Rs.8,000 3 Purchased goods by cheque Rs.3,000 4 Paid rent Rs.150 12 Purchased furniture by cheque Rs.1,800 15 Cash sales Rs.650 16 Gave Gopal a cheque Rs.970 (allowed discount by him Rs.25) 18 Received from Narayan a cheque for Rs.1,500 and he was allowed a discount of Rs.30 20 Paid into bank Rs.1,500 25 Paid wages Rs.60 26 Drew for office use Rs.400 from bank 27 Drew for personal use Rs.100 from bank 28 Issued a cheque to Amar was dishonored 30 Furniture purchased for resale for cash Rs.250. Prob:4 Prepare a three column cash book from the following transactions: 2004, Oct 1 Cash in hand Rs.1,800 Cash at bank Rs.11,000 5 Discount a bill at 5% through bank Rs.4,000. 7 Bought goods by cheque Rs.7,000 8 Bought goods by cash Rs.500
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10 Honoured our own acceptance by cheque Rs.5,000 14 Paid trade exps. 16 Paid into bank 18 Ramesh who owed us Rs.500 became bankrupt and paid us 50p in the rupee 20 Received cash from Mohan Rs.400 Allowed discount Rs.10 23 Withdrew from bank Rs.400 Paid to Ganesh Rs.300 Allowed us discount Rs.10 24 Received Rs.2000 for a bill from Hari and deposited the same into bank 25 Withdrew from bank for private exps. Rs.300 27 Sold goods for cash Rs.200 28 Received cheque for goods sold Rs.9,000 29 Received payment of a loan of Rs.5,000 and deposited Rs.3,000 out of it into bank. 30 Bank charges as per pass book Rs.5 4. Petty Cash Book Petty cash book is the book which is used for the purposes of recording the payment of petty cash expenses. E.g.Postage & stationary exps. Differences between Main cash book and Petty cash book 1. In the main cash book all cash receipts are recorded whereas in the petty cash book only cash receipts from main cashier are recorded. 2. In the main cash book all cash payments except payments of petty cash exps., are recorded whereas in the petty cash book only payment of petty cash expenses are recorded. Imprest System of Petty Cash Book The amount which the main cashier hands over to the petty cashier in order to meet the petty cash expenses of a given period is known as imprest or float Advantages of Imprest System of Petty Cash Book 1. Control over mistakes: Chances for mistakes are reduced since the chief cashier regularly examines petty cash book. 2. Control over petty exps.: Petty expenses are kept within the limits of imprest since the petty cashier can never spend more than the available petty cash. 3. Control over fraud: Misappropriation if any, is always kept within the limits of imprest. 4. Saving of chief cashiers time: The time of chief cashier is saved when petty exps.are recorded in petty cash book.
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Format Petty Cash Book Prob:1 From the following, prepare petty cash book on imprest system of Laxman & Co. for the month of Jan 2001. 2001 Jan1 Opening balance Rs.100 2 Paid for stamps Rs.12 3 Paid cleaners wages Rs.15 4 Paid for bus fare Rs.16 5 Paid tea etc. Rs.15 6 Paid for repairs of cycle Rs.10 7 Paid for advertisement Rs.30 8 Drew imprest from head cashier 9 Paid for cartage Rs.10 10 Paid for traveling exps. Rs.25 11 Paid for Telegram Rs.15 12 Paid for entertainment to salesman Rs.20 13 Paid for repairs of cycle Rs.10 14 Paid for printing bill Rs.5 15 Paid for stationary Rs.3 16 Drew imprest from head cashier
Preparation of Final Accounts / Statements

Module 3 FINAL ACCOUNTS Final accounts consists of two statements i.e. (I) Income Statement or Trading, profit & Loss A/c and (ii) Balance Sheet. Income statement which shows the net results of the firm. Balance sheet shows the financial position of the business. As these two statements provide the final result of any business, they are called final accounts.
Income Statement

(i)
Income statement consists of both Trading A/c and Profit & Loss A/c Trading A/c The object of this account is to arrive at the results of trading operation.I.e.to find out that the organization has derived profit or loss out of buying & selling operation.
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Profit & Loss A/c This account is prepared to ascertain the net profit/loss of the business during an accounting period. The P&L a/c can be defined as a statement that summarizes the revenues and expenses of an accounting period so as to reflect the changes in various critical areas of firms operations. Dec,2005, from the following Credit Rs.
Prob:1 Prepare a trading a/c for the year ended 31 st information Debit Rs. Opening stock 30,000 Purchases 3,10,000 Purchase Returns Sales Sales Returns 6,000 Closing stock was valued at Rs.40,000
8,000 4,50,000
Prob:1 From the following balances extracted at the close of the year ended 31st Dec, 1998, prepare the Profit & Loss a/c as at that date. Rs. Rs. Gross Profit 1,53,000 Carriage outward 7,500 Salaries 27,500 Discount (Dr.) 1,500 Apprentice Rent 3,300 Premium(Cr) 4,500 Traveling exp 600 Fire Insur. Premium 2,700 Rates & taxes 1,050 Printing & Stationary 750 Trade exps. 900 Bad debts 6,300 Prob:2 Prepare P&L a/c as on 31st Dec, 1999 from the following information: Rs.
Gross profit Salaries General exp Depn.on furniture Provision for
67,800 Rent 7,000 500 650
3,000 Insurance 3,150 Discount (Dr.) 3,250 Bad debts 1,250 Provision for 19
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Doubtful debts 250 Discount recd. 1,850 Int. on investment Postage
Discount on Drs. 420 Commission (cr) 1,000 750 Traveling exp 1,500 270
Balance Sheet A Balance Sheet is a statement depicting the financial position of the business on a specific date. Balance sheet is defined as a still-photograph of the state of affairs of the business at a particular date. The financial position of a business is revealed by its assets and liabilities on a particular date. Prob:1 From the following particulars, prepare a balance sheet as at 31st Dec, 1998 Rs. Rs. Capital 75,000 Loan to Kumar 7,500 Buildings 82,500 Investments 4,500 Furniture 3,750 Cash in hand 300 Bills receivable 5,250 Cash at bank 5,250 Sundry debtors 30,000 Drawings 4,500 Bills payable 3,750 Net profit 58,350 Sundry creditors 23,700 Stock 10,500 Machinery 6,750 Prob:2 From the following balances, prepare Trading and Profit Loss A/c for the year ending 31st, Dec 2003 and Balance Sheet on that date. Rs. Rs. Capital 35,000 Purchases 46,850 Building 18,750 Wages 2,500 Machinery 9,250 Electric charges 190 Debtors 7,000 Printing & Stationary 2,000 General exp. 800 Carriage inwards 850 Rent paid 3,710 Cash at bank 3,000 Drawings 650 Return outwards 110 Salaries 1,110 Cash in hand 1,800 Dis. Allowed 200 Sundry creditors 10,000 st 16,500 Returns inwards 450 Stock (1 Jan) Sales 65,900 Bills payable 5,000 Closing stock as Rs.18,210
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Prob:3 The following is the Trial Balance of Sri.Balaji on 30th June 2003 Debit Credit Rs. Rs. Capital 1,86,000 Drawings 15,735 Stock (1-7-02) 17,280 Sundry creditors 18,900 Sundry debtors 43,500
Machinery Patents Freehold land Buildings Sales Purchase Sales returns Purchase returns Cash in hand Cash at bank Insurance General exp Salaries Wages Factory fuel and power Carriage on purchases Carriage on sales Rent
60,000 22,500 30,000 96,000 2,96,340 1,22,025 2,040 1,500 1,620 7,890 1,800 9,000 45,000 25,440 14,190 6,120 9,600 27,000 5,29,740 5,29,740
The following adjustments are to be effected: Stock on 30th June 2003 Rs.20,400 5% on sundry debtors is to be written off as bad Salaries for the month of June 2003 amounting to Rs.4,500 were unpaid. Insurance include a premium of Rs.510 on a policy expiring on Dec, 31st 2003. Rent Rs.3,000 is accrued but not received. Depreciate Machinery @ 10% and Patents @20% You are required to prepare Trading, Profit & Loss A/c and the Balance Sheet as on June 2003.
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COMPANY ACCOUNTS Prob:1 The following are the balances of XYZ Ltd. as on 31st March, 2005: Debit Rs. Credit Rs. Premises 30,72,000 Share capital 40,00,000 Plant 33,00,000 12% Debentures 30,00,000 Stock 7,50,000 Profit & Loss A/c 2,62,500 Debtors 8,70,000 Bills payable 3,70,000 Goodwill 2,50,000 Creditors 4,00,000 Cash and bank 4,06,500 Sales 4,50,000 Calls in arrear 75,000 General reserve 2,50,000 Interim dividend paid 3,92,500 Bad debts provision on Purchases 18,50,000 1.4.04 35,000 Preliminary exp 50,000 Wages 9,79,800 General exp 68,350 Salaries 2,02,250 Bad debts 21,100 Debentures Int. paid 1,80,000 1,24,67,500 1,24,67,500 Adjustments Depreciate plant by 15% Write off Rs5,000 from Preliminary expenses. Half years Debenture Interest due. Credit 5% provision on debtors for doubtful debts. Provide for Income Tax @ 50% Stock on 31st March, 2005 was Rs.9,50,000 Prepare Final Accounts of the company. Prob:2 Sherry Engg. Ltd. have authorized capital of Rs.50 lakhs divided into 5,00,000 equity shares of Rs.10 each. Their books show the following balances as on 31st Dec, 2006. Debit Rs. Credit Rs. Stock 1.1.06 6,65,000 Equity share Capital 20,00,000 Discounts & rebates 30,000 (2,00,000 shares of Rs.10 each) Carriage inwards 57,500 4% Debentures 5,00,000 Patterns 3,75,000 Bank overdraft 7,57,000 Rates, tax & insurance 55,000 Sundry creditors 2,40,500 Furniture & Fixtures 1,50,000 Sundry Creditors 2,40,500 Materials purchased 12,32,500 Sales 36,17,000 Repairs 46,500 Rent (cr) 30,000 Wages 13,05,000 Transfer fees 6,500 Coal & fuel 63,000 Profit & Loss A/c (cr) 67,000 Freehold land 12,50,000 Plant & Machinery 7,50,000 Department of MBA/SJBIT Page 27 Engg. Tools 1,50,000 Goodwill 3,75,000 Sundry Debtors 2,66,000
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Bills receivables 1,34,500 Advertisement 15,000 Commission & brokerage 67,500 Business exp. 56,000 Bank Current A/c 45,500 Cash in hand 8,000 Debenture interest (for half year 31.6.06) 10,000 Interest banks 91,000 Preliminary exp. 10,000 Calls in arrear 10,000 Additional Information The stock as on 31st Dec 2006 was Rs. 7,08,000. Outstanding wages Rs.25,000 and outstanding business expenses Rs.25,000. Dividend declared @ 10% on paid-up capital. Charge Depreciation: Plant & Machinery @5%; Engg. Tools @ 20%; Patterns @ 10%; Furniture & Fixtures @10% Provide 2% on debtors as doubtful debts after writing off Rs.21,500 as bad debts. Write off preliminary expenses Rs.5,000 and create debenture redemption reserve Rs.50,000. Provide Rs.2,40,000 for income tax. Prepare Final Accounts of this company. Prob:3 On 31st March, 2005 the following balances appears in the books of the Alpha Hotels Ltd. Debit Rs. Credit Rs. Interest on debentures 60,000 12% Mortgage debentures 5,00,000 Rates & Taxes 18,000 Share capital 40,00,000 Stock of provisions on General reserve 5,00,000 1.4.04 2,50,000 Unclaimed dividends 15,000 Purchase of provisions 25,00,000 Prov. For bad debts 50,000 Salaries and wages 7,50,000 Trade Creditors 2,50,000 Provident fund contbn. 30,000 Expenses owing 80,000 Misellaneous exp. 50,000 Visitors credit balances 10,000 Directors fees 24,000 Staff Provident fund 7,50,000 Managing directors P & L A/c 81,000 Salary 2,15,000 Income from boarding & lodging 51,00,000 Land 15,00,000 Misc. receipts 65,000 Buildings 50,00,000 Depreciation A/c: Furniture & Fittings 15,00,000 Buildings 20,00,000 Linen, Crockery, Glassware Cutlery and utensils 3,20,000 Furniture 10,00,000
Accounting for Management Sundry debtors 3,50,000 Prepaid exps. 25,000 Advance against 15,00,000 purchase of Buildings Cash in hand 15,000 Balance at bank 4,74,000 1,45,81,000 Linen, Crockery etc. 1,80,000
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1,45,81,000
After taking the following information into account prepare the companys balance sheet as on 31st March 2005 and its profit & loss a/c for the same period:

Stock of provisions on 31st March, 2005 was valued at 3,00,000 Provide Rs.1,00,000 for depreciation of furniture and fittings; Rs.20,000 for depreciation of linen, crockery etc. Make a provision for taxation @50% The directors decide to recommend a dividend @10% on the paid up capital of the company and transfer the remaining balance in profit & loss a/c to general reserve. The entire paid up share capital of the company consists of fully paid equity shares of Rs.10 each.
Prob:4 (July 2005) X Ltd. was registered with a nominal capital of Rs.10,00,000 divided into shares of 10 each, of which 40,000 shares had been issued and fully paid. The following is the trial balance extracted on 31.12.2003. Stock (1.1.2003) 1,86,420 Manufacturing wages 1,09,740 Manufacturing exp. 19,240 Purchases and sales 8,21,460 11,69,900 Repair to machinery 8,610 Carriage inwards 4,910 Carriage outwards 9,260 Transfer fees 40 Advance income tax 14,290 Bank loan 50,000 Interest on loan 1,250 Debtors and creditors 1,64,400 92,220 P/L A/c (1.1.2003) 8,640 Returns 12,640 9,810 Bank current A/c 6,860 Cash in hand 1,920 Lease hold factory 64,210 Plant & machinery 78,400 Loose tools 12,500
Accounting for Management Share capital Commission Calls in arrears Electricity charges (factory Rs.14,210, office Rs. 3400) Directors fees Office salaries Audit fees Office furniture Preliminary exp. Good will 4,00,000 8,640 1,000 17,610 12,000 13,000 1,250 5,000 6,000 1,50,000
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17,30,610
17,30,610
You are required to prepare trading and P/L A/c for the year ending 31.12.03 and a balance sheet as at that date after taking in to consideration the following adjustments. Write off 1/3 of preliminary exp. Depreciation is to charged at 20% on plant and machinery and 10% on furniture. Manufacturing wages Rs.1,890 and offices salaries Rs.1,200 are outstanding. Provide for interest on bank loan for 6 months. Stock was valued at Rs.1,24,840 and loose tools at Rs.10,000 Reserve Rs.8,500 on debtors for doubtful debts. Reserve further Rs.3,120 for discount on debtors The directors recommended dividend at 5% for the year ending 31.12.2003 after providing for taxes amounting to Rs.23,000.
Module-4 Analysis of Financial Statement

INTRODUCTION TO FINANCIAL ANALYSIS Analysis means methodical classification of the data given in the financial statements. Interpretation means explaining the meaning and significance of the data so
Accounting for Management simplified.
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Financial Analysis is the process of identifying the financial strengths and weakness of the firm by properly establishing relationships between the items of the balance sheet and the profit and loss account.
Different tools of financial Analysis

1. 2. 3. 4. The various tools used for the analysis of the financial statements of a firm are: Comparative Financial Statements Common size Financial Statements Trend Analysis Ratio Analysis.
ILLUSTRATION
The following illustration will be used for explaining the various tools of financial analysis: Illustration: From the following profit and loss Account and Balance sheets of Swadeshi Polytex Ltd. For the year ended 31st December 1987 and 1988, you are required to prepare a Comparative Income Statement and a Comparative Balance Sheet. Profit and Loss Account of rupees) Particulars To Cost of goods sold To Operating Expenses: Administrative expenses Selling expenses To Net Profit 1987 Rs. 600 20 30 150 800 1988 Particulars Rs. 750 By Net Sales 20 40 190 1000 Balance Sheet of rupees) Liabilities Bills Payable Sundry Creditors Tax Payable 14% Debentures 16% Preference Capital Equity Capital Reserves
(in lakhs 1987 Rs. 800 1988 Rs. 1000
800
1000 (in lakhs
1987 Rs. 50 150 100 100 300 400 200 1,300
1988 Rs. 75 200 150 150 300 400 245 1, 520
Assets Cash Sundry Debtors Stock Land Building Plant Furniture
1987 Rs. 100 200 200 100 300 300 100 1,300
1988 Rs. 140 300 300 100 270 270 140 1,520
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COMPARATIVE FINANCIAL STATEMENTS

A simple method for financial analysis is Comparative Financial
Statements. Comparative financial statements will contain items at least for two periods. Changes increases and decreases in income statement and balance sheet over period are shown. Comparative Financial Statements can be prepared for more than two periods or on more than two dates. Illustration: From the illustration of M/s Swadeshi Polytex Ltd prepare comparative income statement comparative balance sheet. Swadeshi Polytex Ltd.
Comparative Income Statement for the years ended 31st December 1987 and 1988 (in lakhs of rupees) Absolute increase(+) or decrease (-) in 1988 Rs. +200 +150 +50 Absolute increase (+) or decrease(-) in 1988 % +25 +25 +25
Particulars
1987 Rs.
1988 Rs.
Net Sales Less: Cost of goods sold Gross Profit Operating Expenses: Administrative expenses Selling expenses Total Operating expenses Net Profit
800 600 200
1000 750 250
20 30 50 150
20 40 60 190
-+10 +20 +40
-+33.33 +20 +26.67
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1987 Rs.
1988 Rs.
Absolute increase(+) or decrease (-) in 1988 Rs.
Absolute increase (+) or decrease(-) in 1988 %
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ASSETS Current Assets Cash Debtors Stock Total Current Assets
100 200 200 500
140 300 300 740
+40 +100 +100 +240
+40 +50 +50 +50
Fixed Assets Land Building Plant Furniture Total Fixed Assets Total Assets
100 300 300 100 800 1,300
100 270 270 140 780 1,520
--30 -30 +40 -20 +220
--10 -10 +40 -2.50 +17
LIABILITIES & CAPITAL Current liabilities Bills Payable Sundry creditors Taxes Payable Total Current Liabilities Long term Liabilities 14% Debentures Total Liabilities Capital and Reserves 16% Preference Capital Equity Capital Reserves Total Share Holders Funds
50 150 100 300
75 200 150 425
+25 +50 +50 +125
+50 +33.33 +50 +41.66
100 400 300 400 200 900
150 575 300 400 245 945
+50 +175 --+45 +45
+50 +43.75 --+22.50 +5.00
Total Liabilities and capital
1,300
1,520
220
17.00
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Swadeshi Polytex Ltd. Comparative Balance Sheet for the years ended 31st December 1987 and 1988 (in lakhs of rupees)
COMMON SIZE FINANCIAL STATEMENTS Comparative Financial Statements can be prepared for more than two periods or on more than two dates. However, it becomes very cumbersome to study the trend with more than two periods data. Trend percentages are more useful in such cases.
Common size financial statements are those in which figures reported are converted into percentages to some common base. In the income statement, the sale
figure is assumed to be 100 and all figures are expressed as a percentage of sales. Similarly, in the Balance Sheet, the total of assets or liabilities is taken as 100 and all figures are expressed as a percentage of this total. Illustration: On the basis of the data given in the previous illustration pertaining to Swadeshi Polytex limited, prepare the common size income statement and common size balance sheet for the years ended 31st March 1987 and 1988. Solution: Swadeshi Polytex limited Common Size Income Statement for the years ended 31st March 1987 and 1988
Particulars Net sales Less: Cost of goods sold GROSS PROFIT Operating Expenses: Administrative Expenses Selling Expenses Total Operating Expenses 1987 1988 Figures in % 100 100 75 75 25 25 2.50 3.75 6.25 2.00 4.00 6.00
Interpretation
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The above statement shows that though in absolute terms, the cost of goods has gone up, the percentage of its cost to sales remains consistent at 75%. This is the reason why the gross profit continues at 25% of sales. Similarly, n absolute terms the amount of administrative remains the same but as percentage to sales it has come down by 0.5%. Selling expenses have increased by0.25%. These all lead to net increase in net profit by 0.25%. Swadeshi Polytex limited Common Size Balance Sheet for the years ended 31st March 1987 and 1988
Particulars CURRENT ASSETS Cash Debtors Stock Total Current Assets FIXED ASSETS Building Plant Furniture Land Total fixed assets TOTAL ASSETS
1987 % 100 7.70 15.38 15.38 38.46 23.07 23.07 7.70 7.70 61.54 100.00 1987 % 100 3.84 11.54 7.69 23.07 7.69 23.10 30.76 15.38 76.93 100
1988 % 100 9.21 19.74 19.74 48.69 17.76 17.76 9.21 6.68 51.31 100.00 1988 % 100 4.93 13.16 9.86 27.95 9.86 19.72 26.32 16.15 72.05 100
Particulars CURRENT LIABILITIES Bills Payable Sundry Creditors Taxes payable Total Current Liabilities LONG TERM LIABILITIES 14% Debentures CAPITAL & RESERVES 16% Preference share capital Equity share capital Reserves Total Shareholders' Funds TOTAL LIABILITIES AND CAPITAL
Interpretation
The percentage of current assets to total assets was 38.46 in 1987. It has gone up to 48.69 in 1988. Similarly the percentage of current liabilities to total liabilities
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(including capital) has gone up from 2307 in 1987 to 27.95 in 1988. Thus the proportion of current assets has increased by percentage of 10 as compared to increase in the proportion of current liabilities, which is about 5%. This has improved the working capital position of the company. There has been a slight deterioration in the debt-equity ratio though it continues to be sound. The proportion of shareholders funds in the total liabilities has come down from 69.24% to 61.19% while that of debenture holders has gone up from 7.69% to 9.86%.
TREND ANALYSIS
Trend percentages are immensely useful in making a comparative study of financial statements for several years. The method of calculating trend percentages involves the calculation of percentage relationship that each item bears to the same item in the base year. Any year may be taken as the base year. It is usually the earliest year. Each item of base year is taken as 100 and on that basis the percentage for each item of the years is calculated. These percentages can also be taken as Index Numbers showing relative changes in the financial data resulting with the passage of time.
Any intervening year m
Illustration: From the following data relating to the assets side of the balance sheet of Kamadhenu Ltd., for the period 31st December 1985 to 31st December 1988 you are required to calculate the trend percentage taking 1985 as the base year.
Assets Cash Debtors Stock-in-trade Others current assets Land Building Plant TOTAL In lakhs of Rs. As on 31st December 1985 1986 1987 1988 100 120 80 140 200 250 325 400 300 400 350 500 50 75 125 150 400 500 500 500 800 1,000 1,200 1,500 1,000 1,000 1,200 1,500 2,850 3,345 3,780 4,690
Solution
ASSETS Current Assets Cash December 31st (Rupees in lakhs) 1985 100 1986 120 1987 80 1988 140 Trend percentages Base year 1985 1985 100 1986 120 1987 80 1988 140
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Debtors Stock-in-trade Other Current Assets Total Current Assets Fixed Assets Land Building Plant Total Fixed Assets 200 300 50 650 400 800 1000 2200 250 400 75 845 500 1000 1000 2500 325 350 125 880 500 1200 1200 2900 400 500 150 1190 500 1500 1500 3500 100 100 100 100 100 100 100 100
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125 133 150 129 125 125 100 114 163 117 250 135 125 150 100 132 200 167 300 183 125 175 150 159
Ratios for Financial Statement Analysis

A ratio gives the mathematical relationship between one variable and another. Ratios are well known and most widely used tools for financial analysis. The various types of ratios have been classified into the following categories: 1. Liquidity ratios 2. Turnover ratios 3. Profitability ratios 4. Ownership ratios Earnings ratio Dividend ratios Leverage ratios -- Capital structure ratios -- Coverage ratios LIQUIDITY RATIOS
Liquidity implies a firms ability to pay its debts in the short term. This ability can be measured by the use of liquidity ratios. Short term liquidity involves the relationship between current assets and current liabilities. 1. Current Ratio Current Assets
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Accounting for Management Current Ratio = ---------------------------Current Liabilities
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Current assets include cash, marketable securities, debtors, inventories, loans and advances and prepaid expenses. Current liabilities include loans and advances taken, trade creditors, accrued expenses and provisions.
2. Quick Ratio This ratio is also termed as Acid Test Ratio.

Quick Assets Quick Ratio = ----------------------------Current Liabilities
Quick Assets = Current Assets Inventories
TURNOVER RATIOS 3. Accounts Receivable Turnover Ratio Accounts Receivable Ratio (Debtors turnover ratio)
= Net sales (or) Net Credit sales Receivables Average Accounts Receivables
The average accounts receivable is obtained by adding the beginning receivables of the period and the ending receivables and by dividing the sum by 2. The net sales or net credit sales made by the firm should be taken for analysis. 4. Average Collection Period The average number of days for which the debtors remain outstanding is called the average collection period. It is calculated as under: Average Collection period = 360 Average Accounts Receivables Turnover
(Or) = Average Accounts Receivables
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Average daily sales 5. Inventory turnover ratio

The liquidity of a firms inventory may be calculated by dividing the cost of gods sold, by the firms inventory. The inventory or stock turnover, measures how fast the inventory is moving through the firm and generating sales. It is calculated by the following formula:
Inventory turnover = Cost of goods sold Average inventory
(or) Net sales Inventory
Where, average inventory is the average of the opening and closing inventory in any year and inventory means only the closing inventory at the end of a year. 6. Fixed Assets Turnover ratio Fixed assets turnover ratio = Net sales Fixed assets (or) _Cost of goods sold fixed sales
This ratio is supposed to measure the efficiency with which the fixed assets are employed
7. Total Assets Turnover Ratio Total Assets Turnover Ratio = Net sales Total Assets.
Total assets are simply the balance sheet total at the end of the year.
PROFITABILITY RATIOS
8. Gross Profit Margin Ratio Gross profit is the difference between the net sales and the cost of goods sold
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Accounting for Management Gross Profit Margin Ratio = Gross profit Net sales This ratio shows the margin left after meeting manufacturing costs.
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9. Net Profit Margin Ratio Net Profit Margin Ratio = Net profit Net sales It shows the earnings left for the shareholders (both equity and preference) as a percentage of net sales.
10. Earnings power
Earnings is a measure of the operating profitability and is arrived at by the following formula: Earnings Power = Earnings before interest and taxes Average total assets
EARNINGS RATIO
11. Earnings per share The shareholders are concerned about the earnings of the firm in two ways. One is the availability of the funds with the firm to pay their dividends and the other is to expand their interest in the form of retained earnings that the firm can use to improve its profitability. Earnings are expressed on a per share basis which is in short called EPS. Earnings Per Share = Net Profit after Tax Number of outstanding shares
12. P/E Ratio It is calculated as under Price Earnings Ratio = Market Value per share Earnings per share
13. Capitalization Rate The capitalisation rate is just the inverse of the Price-Earnings Ratio. Capitalisation Rate =
Earnings per share

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Accounting for Management Market Value per share
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LEVERAGE RATIOS
Leverage refers to the use of debt finance. While debt capital is a cheaper source of finance, it is also riskier source of finance. Leverage ratios help in assessing the risk arising form the use of debt capital. 14. Debt Ratio The firm may be interested to know the proportion of interest bearing funded debt in the capital structure. Then this debt ratio will be helpful. It is arrived at by dividing the total debt (TD) by the capital employed (CE) or Net Assets (NA) Debt Ratio = (TD) Total Debt (TD) + Net Worth (NW) (CE) Capital Employed Total Debt (TD) = Total Debt
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Note: 1. Capital Employed = Net Assets = Net Fixed Assets + Net Current Assets 2. Net Current Assets = Current Assets Current liabilities excluding interest bearing short term debt for working capital. NFA + CA = NW + TD + CL NFA + CA CL = NW + TD NFA + NCA = NW + TD NA = CE Because equality of capital employed and Net assets, the debt ratio can also expressed as Debt Ratio = Total Debt (TD) Capital Employed (CE)
15. Debt-Equity Ratio This ratio indicates the relative contributions of creditors and owners Debt Equity ratio = Debt Equity
CASH FLOW STATEMENT

MEANING Cash flow statement is a statement, which describes the inflows and outflows of cash and cash equivalents in an enterprise during a specific period of time. Such statement takes into account the receipts and disbursements of cash. A cash flow statement summarises the causes of changes in cash position of a business enterprise between two dates.
CLASSIFICATION OF CASH FLOWS

The cash flow are classified into three main categories as: 1. Cash flow from operating activities 2. Cash flow from investing activities 3. Cash flow from financing activities 1. CASH FLOW FROM OPERATING ACTIVITIES Operating activities are the principal revenue producing activities of the enterprise and other activities that are not investing or financing activities. Cash flow from operating activities is principally derived from the principal revenue-producing activities of the enterprise.
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The cash inflows from operating activities include receipts from customers for sales or goods and services (including collection from debtors). Cash outflows from operating activities include payments to suppliers for purchase of materials and for services, payments to employees for services and payments to governments for tax duties. 2. CASH FLOW FROM INVESTING ACTIVITIES Investing activities are the acquisition and disposal of long-term assets and other investments not included in cash equivalents. It involves making and collecting of loans and acquiring and disposing of debt and equity instruments and fixed assets. The cash inflows from investing activities are receipts from collection of loans, receipts from sales of shares, debt or similar instruments of other enterprises, receipts from sales of fixed assets, and interest and dividends received on loans and investments. Cash outflows from investing activities are disbursements of loans, payments to acquire shares, debt or similar instruments of other enterprises, and payments (including advance and down payments) to acquire fixed assets.
3. CASH FLOW FROM FINANCING ACTIVITIES Financing activities are the activities that result in change in the size and consumption of the owners capital (including preference share capital in case of a company) and borrowings of the enterprise. Cash inflows from financing activities are proceeds from issuing shares or other similar instruments, debentures, mortgages, bonds and other short or long-term borrowings. Cash outflows from financing activities are the payments of dividends, payments to acquire or redeem shares or other similar instruments of the enterprise, repayments of amounts borrowed, principal payments to creditors who have extended long-term credit, and interest paid. Cash flow statement for the year ended
Particulars Cash flows from Operating Activities Either Cash receipts from customers (-) Cash paid to customers Cash generated from operations (-) Income tax paid Cash flow before extra ordinary items Extraordinary items Net cash from (used in) operating activities OR Net profit before tax and extraordinary items Adjustments for non-cash and non-operating items Rs. Rs.
xxxxx (xxx) xxxxx (xxx) xxxxx xxxxx xxxxx xxxxx xxx
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[List of individual items such as depreciation, foreign exchange loss, loss on sale of fixed assets, interest Income, dividend income, interest expense etc.] Operating profit before working capital changes Adjustments for changes in current assets and Current liabilities ( list of individual items) Cash generated from (used in) operations before tax (-) Income tax paid Cash flow before extra ordinary items Extraordinary items Net cash from (used in) operating activities Cash flow from Investing Activities Individual items of cash inflows and cash outflows from investing activities [Such as purchase/sale of fixed assets, purchase or sale of investments, Interest received, dividend received etc.] Net cash from (used in) investing activities Cash flows from Finance Activities Individual items of cash inflows and cash outflows from financing activities [Such as proceeds from issue of shares, long-term borrowings, repayments of long-term borrowings, interest paid, dividend paid etc. Net cash from (used in) investing activities Net Increase (Decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period
xxxxx xxx xxxx (xxx) xxxx xxxx xxxxx
xxx xxx xxx xxxx
xxxx xxxx xxxx xxxxx xxx xxxxx xxxxx
CASH INFLOWS OUTFLOWS
ACTIVITIES
CASH Payments to suppliers and employees for materials and services
Receipts from customers for sales of goods and services activities
OPERATING ACTIVITIES fixed assets
Receipts from sale of

Accounting for Management Payments to government for taxes and duties Payment for purchase of fixed assets
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Receipts from sales of investments and fro collection of loans INVESTING ACTIVITIES
Receipts from interest and dividends on loans and investments Receipts from issuance of share capital
Payments for purchase of investments and making loans
Payments for dividends on share capital
Receipts from issuance of debentures
FINANCING ACTIVITIES
Payments for principal on debentures and other borrowings
Receipts from other long-term borrowings
Payments for interest on debentures and other borrowings
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Module-5 ACCOUNTING STANDARDS

The Accounting standards bring uniformity in the preparation and presentation of financial statements and aids in comparison of different financial statements of companies in the same or different industries.
Procedure for framing Accounting Standards The International Accounting Standards are issued by the IASC These Standards are received by ICAI assigned to ASB The Accounting standards are issued under the authority of the council of ICAI. So far the ASB of ICAI has issued 28 Accounting standards as shown below Mandatory for Accounting period beginning on or after
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Accounting
Standard
Title
Accounting for Management AS-1 AS-2(Revised) AS-3(Revised) AS-4(Revised) AS-5(Revised) AS-6(Revised) AS-7(Revised) AS-8 AS-9 AS-10 AS-11(Revised) AS-12 AS-13 AS-14 AS-15 AS-16 AS-17 AS-18 AS-19 AS-20 AS-21 Disclosure of Accounting Policies Valuation of inventories Cash Flow Statements Contingencies and Events occurring after Balance Sheet Date Net Profit or Loss, prior period items and changes in Accounting policies Depreciation Accounting Accounting for construction contracts Accounting for Research and Development Revenue Recognition Accounting of Fixed Assets Accounting for the effect of changes in foreign exchange rates Accounting for Government Grants Accounting for Investments Accounting for Amalgamations Accounting for retirement benefits in the financial statements of employers Borrowing costs Segment reporting Related Party Disclosures Leases Consolidated Financial Statements Earnings per share
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AS-22 AS-23 AS-24 AS-25 AS-26 AS-27 AS-28 AS-29
Accounting for taxes on income Accounting for investments in consolidated finance statements Discounting operations Interim financial reporting Intangible assets Financial reporting of interest in joint ventures Impairment of Assets Provisions, Contingent Liabilities and Contingent Assets
1.4.2001 1.4.2002 1.4.2004 1.4.2002 1.4.2003 1.4.2002 1.4.2004 1-4-2004
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IFRS vs. Indian Accounting Standards The International Financial Reporting Standards refer to the reporting standards of finance as set by the international accounting standards. Both IFRS and Indian Accounting Standards have different accounting standards. However, with the growing market trend, the need of a common set of accounting standards was felt by all. Hence, IFRS is to be followed. However, with the differences in the standards existing between both the bodies, a careful handling is to be carried out. Following are few changes that will be made in case IFRS is issued and made compulsory: AS-1: Disclosure of Accounting principles IFRS-/IAS-1: Adoption of international financial reporting standards/presentation of financial statements. AS-3:cash flow statements IAS-7: cash flow statements AS-4: events after the balance sheet date IAS-10: events recorded after the balance sheet date AS-5: changes in accounting policies and accounting errors IAS-8: prior period changes and accounting policies and errors changes
AS-6 and AS-10: Depreciation and fixed assets IAS-16: plants, property and equipments AS-9: revenue recognition IAS-18: revenue The above mentioned standards were some of the examples to the changes in accounting standards of both the bodies. Not only that, IFRS deals with the balance sheet in the reverse manner as ours. The first emphasis is laid on to the assets in the order of liquidity. The next recorded details are that of the liabilities starting with the borrowings. Then finally the next recorded details are that of the equity capital which is completely opposite according to the Indian Accounting standards
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Module-VI Audit of a company Audit means a systematic verification of the books of a company to give a true and fair view about its working and also about the financial results of the company. In India only a Chartered Accountant who has passed the professional examination conducted by the Institute of Chartered Accountant can conduct the audit and certify under his hand about his opinion on the maintenance of the books of accounts. The auditor's report is a formal opinion, or disclaimer thereof, issued by either an internal auditor or an independent external auditor as a result of an internal or external audit or evaluation performed on a legal entity or subdivision thereof (called an auditee). The report is subsequently provided to a user (such as an individual, a group of persons, a company, a government, or even the general public, among others) as an assurance service in order for the user to make decisions based on the results of the audit. An auditors report is considered an essential tool when reporting financial information to users, particularly in business. Since many third-party users prefer, or even require financial information to be certified by an independent external auditor, many auditees rely on auditor reports to certify their information in order to attract investors, obtain loans, and improve public appearance. Some have even stated that financial information without an auditors report is essentially worthless for investing purposes
There are four common types of auditors reports, each one presenting a different situation encountered during the auditors work. The four reports are as follows: 1. Unqualified Opinion An opinion is said to be unqualified when the Auditor concludes that the Financial Statements give a true and fair view in accordance with the financial reporting framework used for the preparation and presentation of the Financial Statements. An Auditor gives a Clean opinion of Unqualified Opinion when he or she does not have any significant reservation in respect of matters contained in the Financial Statements. The most frequent type of report is referred to as the Unqualified Opinion, and is regarded by many as the equivalent of a clean bill of health to a patient,[2] which has led many to call it the Clean Opinion, but in reality it is not a clean bill of health, because the Auditor can only provide reasonable assurance that there are no material misstatements within the Financial Statements.[3] This type of report is issued by an auditor when the financial statements presented are free of material misstatements and are represented fairly in accordance with the Generally Accepted Accounting Principles (GAAP), which in other words means that the companys financial condition, position, and operations are fairly presented in the financial statements. It is
Accounting for Management the best type of report an auditee may receive from an external auditor.
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2. Qualified Opinion report A Qualified Opinion report is issued when the auditor encountered one of two types of situations which do not comply with generally accepted accounting principles, however the rest of the financial statements are fairly presented. This type of opinion is very similar to an unqualified or clean opinion, but the report states that the financial statements are fairly presented with a certain exception which is otherwise misstated. The two types of situations which would cause an auditor to issue this opinion over the Unqualified opinion are:
Single deviation from GAAP this type of qualification occurs when one or more areas of the financial statements do not conform with GAAP (e.g. are misstated), but do not affect the rest of the financial statements from being fairly presented when taken as a whole. Examples of this include a company dedicated to a retail business that did not correctly calculate the depreciation expense of its building. Even if this expense is considered material, since the rest of the financial statements do conform with GAAP, then the auditor qualifies the opinion by describing the depreciation misstatement in the report and continues to issue a clean opinion on the rest of the financial statements. Limitation of scope - this type of qualification occurs when the auditor could not audit one or more areas of the financial statements, and although they could not be verified, the rest of the financial statements were audited and they conform
GAAP. Examples of this include an auditor not being able to observe and test a companys inventory of goods. If the auditor audited the rest of the financial statements and is reasonably sure that they conform with GAAP, then the auditor simply states that the financial statements are fairly presented, with the exception of the inventory which could not be audited. 3. Adverse Opinion report An Adverse Opinion is issued when the auditor determines that the financial statements of an auditee are materially misstated and, when considered as a whole, do not conform with GAAP. It is considered the opposite of an unqualified or clean opinion, essentially stating that the information contained is materially incorrect, unreliable, and inaccurate in order to assess the auditees financial position and results of operations. Investors, lending institutions, and governments very rarely accept an auditees financial statements if the auditor issued an adverse opinion, and usually request the auditee to correct the financial statements and obtain another audit report.
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4. Disclaimer of Opinion report A Disclaimer of Opinion, commonly referred to simply as a Disclaimer, is issued when the auditor could not form, and consequently refuses to present, an opinion on the financial statements. This type of report is issued when the auditor tried to audit an entity but could not complete the work due to various reasons and does not issue an opinion. The disclaimer of opinion report can be traced back to 1949, when the Statement on Auditing Procedure No. 23: Recommendation Made To Clarify Accountants Representations When Opinion Is Not Expressed was published in order to provide guidance to auditors in presenting a disclaimer.
Directors report
This is essentially an account of a companys performance in the previous year and its prospects as seen by its board of directors. The objective is to give the reader a sense of the state of the business. It touches upon both quantitative and qualitative issues. Typically, it starts with a summary of the companys performance in the previous year, and the dividends and bonuses declared. Then, it launches into a discussion of which parts of the business did well and which didnt, what were the conditions in the industry, the enabling factors and the limitations, and the outlook for the business. Provisions of Companies Act of 1956 Regarding Financial Statements Sec 209 - Books of account to be kept by company. Sec 209A - Inspection of books of account, etc., of companies. Sec 210 - Annual accounts and balance sheet. Sec 211 - Form and contents of balance sheet and profit and loss account. Sec 215 - Authentication of balance sheet and profit and loss account.
- Right of members to copies of Balance Sheet and Auditors' Report. - Three copies of Balance Sheet, etc., to be filed with Registrar. Provisions of Companies Act of 1956 Regarding the Auditors Sec 224 - Appointment and remuneration of Auditors. Sec 226 - Qualifications and disqualifications of Auditors. Sec 227 - Powers and duties of auditors. Sec 229 - Signature of audit report, etc. Sec 230 - Reading and inspection of auditor's report.
Sec 219 Sec 220
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MAOCARO
Under the powers conferred by S. 227(4A), the Central Government first issued an order called the manufacturing and other companies (auditors report) order, 1975, (MAOCARO-1975). This order came into force from 1-1-1976 and applied to all companies engaged in manufacturing, service, trading and finance activities. There were in all 22 items on which auditor was required to give his specific report. With changes in economic environment, the above order was replaced by another order called MAOCARO-1988 which come into force on 1-11-1988. This order contained 27 items on which auditor was required to make specific comments depending on the nature of activities of the company. It may be noted that the 1988 order replaced 1975 order after 13 years. Now, after 15 years, the Central Government has issued, in consultation with ICAI, a new order u/s.227(4A) called the Companies (Auditors Report) Order, 2003. This can be called CARO-2003 which has come into force from 1st July 2003. There are 33 items in CARO on which the auditor has to make specific comments. Some of the items in MAOCARO-1988 and CARO-2003 are common and some items from MAOCARO are omitted. Since some additional responsibilities are being placed on the auditor under CARO-2003, the discussion in this article is mainly restricted to the new items added under this new order.
Back Ground: With the introduction of CARO, the responsibility of the auditors as well as the companies to which this report applies has increased.
This article makes an attempt to compare the reporting requirements in MAOCARO with that prescribed in CARO. This will help the practicing members as well as members in industry to understand the new requirement and comply with it.
Clause by Clause comparison of MAOCARO with CARO

Accounting for Management Sr. No. 1. Particulars Full name MAOCARO Manufacturing and Other Companies (Auditor's Report) Order 1988 Accounting periods ending on any day on or after 1st November 1988 The order does not apply to Banking, Insurance Company and Company formed u/s. 25 of Companies Act CARO
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Companies (Auditor's Report) Order 2003
2.
With effect from
Accounting periods ending on any day on or after 1st July 2003 The order does not apply to Banking, Insurance Company, Company formed u/s. 25 of Companies Act and private limited company if:
3.
Applicability
4.
Clause relating Fixed Assets
paid up capital and reserves not more that Rs. 50 Lacs and has not accepted any public deposits and does not have outstanding loan of Rs. 10 Lacs or more from any bank or financial institution and does not have turnover exceeding Rs. 5 Crs. to Maintenance of proper Same as MAOCARO records offixed assets, physical verification of fixed assets and accounting of material discrepancies on physical verification Whether any fixed assets No such reporting is required have been revalued during the year and if so the basis of revaluation should be indicated 47
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No such required
reporting
is If substantial part of fixed assets have been disposed off during the year whether it has affected the going concern Same as MAOCARO. However, instead ofmentioning finished goods, stores, spare parts and raw materials CARO mentions the word "inventory". Thus, now WIP can also be included in the list which earlier was not there.
5.
Clause relating Inventories
to Whether physical verification carried out at reasonable intervals in respect of finished goods, store, spare parts and raw materials
Whether procedures Same as MAOCARO relating to physical verification of stocks reasonable and adequate in relation to the size of and nature of the business of the company. If not inadequacies to be reported Whether material discrepancies relating to physical verification properly accounted for Same as MAOCARO. However, one aspect added here is whether the company is maintaining proper records of inventory
Whether stock valuation Deleted has been done in accordance with accepted accounting principles 6. Clause relating to Loans granted and taken from parties listed in register maintained u/s. 301and Companies under the same management as defined u/s. 370 (1B) No such reporting required The number of parties and amount involved in the transactions has to be reported only for parties listed in register maintained u/s. 301. No reporting for companies under same management Same as MAOCARO. However, no reporting required for loans granted to /taken from companies under the same management
Whether rate of interest and other terms and conditions are prima facei prejudicial to the interests of the company
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Accounting for Management 7. Clause relating to other loans or advances in the nature of loans granted or
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taken by the company
repayment No such reporting required Whether the rate of interest and other terms and conditions of loans (secured or unsecured) are prima facei prejudicial to the interest of the company Same as MAOCARO. However, reporting required only if overdue amount is more one lakhs
If the parties are not regular in repayment, whether reasonable steps have been taken by the company for recovery/payment of the principal and interest. 8. Clause relating to Is there adequate internal procedures Internal Control control commensurate with the procedures size of and the nature of the business of the company relating to inventory and fixed assets and for the sale of goods. Clause relating to No such reporting required transactions entered with parties mentioned in register mentioned u/s. 301 Whether transactions are
Same as MAOCARO. However, one very important additional thing to be reported is whether there is a continuing failure to correct major weaknesses in internal control
9.
Whether transactions that need to be entered into a register in pursuance of section 301 have been so entered
Same as MAOCARO. However, effected at market prices. the limit of Rs. 50,000/- has been Reporting required only increased to Rs. 5,00,000/for transactions exceeding Rs. 50,000/Whether any unserviceable Deleted or damaged stores, raw materials or finished goods are determined and whether provisions for the loss, if any, have been made in the accounts
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10.
Clause relating to unserviceable or damaged stores, raw materials or finished goods.
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Module-VII Forensic Accounting

Forensic Accounting
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A branch of accounting that uses investigative skills to determine the accuracy of a company's financial statements in a legal dispute. The word forensic means "suitable for a court of law." Thus, forensic accountants are used in fraud investigations, breach of contract disputes, and other disagreements that require court action. Forensic accountants are often retained by one or both parties in such dispute to bolster their cases Example: Embezzlement - Government Employees County government employees executed a massive fraud scheme in collusion with members of an outside organization to steal and sell close to $500,000 worth of County property. We were engaged by County officials to provide forensic accounting services, assist the police in the investigation and uncover other areas of fraud exposure that existed in the government operations
NATURE AND INCIDENCE OF WINDOW DRESSING

Window Dressing It is the act or instance of making something appear deceptively attractive or favourable; something used to create a deceptively attractive or favourable impression. The act or practice of giving something superficial appeal by skilful presentation. Nature of Window Dressing 1. Inflate the sales from the current year by advancing the sales from the following year. 2. Alter the other income figure by playing with non-operational figures like sale of fixed assets. 3. Fiddle with the method and rate of depreciation. (A switch may be effected from the written down value method to the straight line method or vice versa.) 4. Change the method of stock valuation from, say, direct costing to absorption, to minimize the cost of goods sold. 5. Capitalise certain expenses like research and development costs and product promotion cost, that are ordinarily written off in the profit and loss account. 6. Defer certain discretionary expenditures (like repairs, advertising, research and development) to the following year. 7. Make inadequate provision for certain known liabilities (gratuity etc.,) and treat certain liabilities as contingent liabilities 8. Make extra provisions during prosperous years and written them back in lean years. 9. Use totally unacceptable accounting practices. 10. Revalue assets to create the impression of substantial reserves.
Corporate governance
Corporate governance is the set of processes, customs, policies, laws and institutions affecting the way in which a corporation is directed, administered or controlled. Corporate governance also includes the relationships among the many players involved (the stakeholders) and the goals for which the corporation is governed. The principal players are the shareholders, management and the board of directors. Other stakeholders
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include employees, suppliers, customers, banks and other lenders, regulators, the environment and the community at large. Corporate governance is a multi-faceted subject. An important theme of corporate governance deals with issues of accountability and fiduciary duty, essentially advocating the implementation of guidelines and mechanisms to ensure good behaviour and protect shareholders. Another key focus is the economic efficiency view, through which the corporate governance system should aim to optimize economic results, with a strong emphasis on shareholders welfare. There are yet other aspects to the corporate governance subject, such as the stakeholder view, which calls for more attention and accountability to players other than the shareholders (e.g.: the employees or the environment). Definition
The term corporate governance has come to mean two things. * the processes by which companies are directed and controlled. * a field in economics, which studies the many issues arising from the separation of ownership and control. In A Board Culture of Corporate Governance business author Gabrielle O'Donovan defines corporate governance as 'an internal system encompassing policies, processes and people, which serves the needs of shareholders and other stakeholders, by directing and controlling management activities with good business savvy, objectivity and integrity. Sound corporate governance is reliant on external marketplace commitment and legislation, plus a healthy board culture which safeguards policies and processes'. Parties to corporate governance Parties involved in corporate governance include the regulatory body (e.g. the Chief Executive Officer, the board of directors, management and shareholders). Other stakeholders who take part include suppliers, employees, creditors, customers and the community at large. Issues involving corporate governance principles include: * oversight of the preparation of the entity's financial statements * internal controls and the independence of the entity's auditors * review of the compensation arrangements for the chief executive officer and other senior executives * the way in which individuals are nominated for positions on the board * the resources made available to directors in carrying out their duties * oversight and management of risk * dividend policy
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Human Resource Accounting

Human Resource Accounting (HRA) means to measure the cost and value of the people (i.e. of employees and managers) in the organisation. It measures the cost incurred to recruit, hire, train and develop employees and managers. HRA also finds out the present economic value of its employees and managers. After measuring the cost and value of its employees and managers, the organisation prepares a report. This report is called HRA Report. It is shown to the top level management. It can also be shown to the employees, managers and outside investors. What is Human Resource Accounting? Human Resource Accounting is the process of identifying and measuring data about Human Resources and communicating this information to the interested parties. It is an attempt to identify and report the Investments made in Human Resources of an organisation that are currently not accounted for in the Conventional Accounting Practices. Methods of Human Resource Accounting Quite a few Models have been suggested in the past for the Human Resource Accounting and these can be classified into 2 parts each having various Models. Some of the Important ones are:A. Cost Based Models I. Capitalisation of Historical Costs Model II. Replacement Costs Model III. Opportunity Cost Model B. Value Based Models I. Present Value of Future Earnings Model/ Lev and Schwartz Model II. Reward Valuation Model/ Flamholtz Model III. Valuation on Group Basis A. COST BASED MODELS I. Capitalisation of Historical Costs
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As per this Method of HR Accounting, the sum of all costs related to Human Resources (i.e. Recruitment, Acquisition, Formal Training, Informal Training, Informal Familiarisation, experience and development) is taken together to represent the value of the human resources. II. Replacement Costs The Historical Cost Method was highly criticised as it only takes into account the Sunk Costs which are irrelevant for Decision Making. Thus, a new model for Human Resource Accounting was conceptualised which took into the account, the costs that would be incurred to replace its existing human resources by an identical one. 1. Individual Replacement Costs which refers to the cost that would have to be incurred to replace an individual by a substitute who can provide the same set of services as that of the individual being replaced 2. Positional Replacement Costs which refers to the cost of replacing the set of services referred by an incumbent in a defined position III. Opportunity Cost Model This model was advocated by Hekimian and Jones in the year 1967 and is also known as the Market Value Method. This method of measuring Human Resources under this Model is based on the concept of opportunity cost i.e. the value of an employee in its alternative best use, as a basis of estimating the value of human resources. The opportunity cost value may be established by competitive bidding within the firm, so that in effect, managers bid for any scarce employee. A human asset therefore, will have a value only if it is a scarce resource, that is, when its employment in one division denies it to another division. B. ECONOMIC VALUE MODELS I. Present Value of Future Earnings Model This Model of human resource accounting was developed by Lev and Schwartz in the year 1971 and involves determining the value of human resources as per the present value of estimated future earnings discounted by the rate of return on Investment (Cost of Capital). II. Reward Valuation Model/ Flamholtz Model Flamholtz advocated that an Individuals Value to an organisation is determined by theservices he is expected to render. This model of Human Resource Accounting is an improvement to the Present Value of Future Earnings Model as it takes into account the probability that an individual is expected to move through a set of mutually
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exclusive organisational roles or service states during a time interval. movement can be estimated probabilistically by using the following model
III. Valuation on Group Basis While applying the above models, the Accountants realised that proper Valuation as per Human Resources Accounting is not possible unless the contributions of the Individuals as a Group are taken into consideration.
Module-VIII
VARIOUS HEADS OF INCOME All income shall be classified under the following heads of income for the purpose of charge of income tax and computation of total income. Income from Salaries Income from house property Profits and gains of business or profession Income from Capital gains Income from other sources
Income from Salaries:

Under section 15, the following incomes are chargeable under the head salaries Any salary due from an employer or former employer to an assessee in the previous year, whether paid or not; Any salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer, though not due or before it became due to him. Any arrears of salary paid or allowed to him in the previous year by or on behalf of an employer of former employer, if not charged to income tax for any earlier previous year. Definitions: Under section 17 of the Act the following have been defined. Salary Perquisites
Accounting for Management Profits in lieu of salary
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Salary [Sec. 17(1)]: Salary includes Wages Any annuity or pension Any gratuity Any fees, commission, perquisites or profits in lieu of or in addition to any salary or wages. Any advance of salary, but not advance for purchasing a car, cycle, scooter or a house; etc Any payment received by an employee in respect of any period of leave not availed of by him. The annual accretion to RPF to the extent of the following o Employers contribution in excess of 12% of salary o Interest on the balance in the RPF credited in excess of 9.5% The accumulated transferred balance from URPF account to a RPF account to the extent of it is chargeable. The contribution made by the central government or any other employer in the previous year to the account of an employee under a pension scheme referred to in sec 80CCD.
Deductions: The income chargeable under the head salaries shall be computed after making the following deductions from gross salary: Deduction for entertainment allowance Deduction in respect of professional tax
Entertainment Allowance [sec. 16(ii)]

Entertainment allowance is not eligible for exemption but it only qualifies for deduction. Therefore, entertainment allowance is first included in gross salary and then deduction is allowed under section 16(ii). This deduction is available only in case of government employees and not in case of other employees. The deduction allowable in the case of government employees is to the extent of least of the following: Rs. 5,000; or 1/5 of salary; or Actual entertainment allowance received for the previous year. Salary for the purpose of entertainment allowance deduction means only basic salary.
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Professional Tax [sec. 16(iii)
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Deduction is allowed in respect of any sum paid by the assessee on account of a tax on employment. In case, if the professional tax is paid by the employer on behalf of the employee, the amount so paid should be included in gross salary as a perquisite and then deduction under section 16(iii) can be claimed.
Death-cum-retirement Gratuity: [Sec. 10(10)]

In case of Government employees: Any death cum retirement gratuity received by government employees is fully exempt from tax. In case of non-government employees covered by the payment of gratuity Act, 1972: Any gratuity received by a non government employee who is covered by the payment of gratuity act of 1972, is exempt from tax to the extent of least of the following: (a) (b) Rs. 3,50,000; or 15 days salary (last drawn salary *15/26) based on last drawn salary for each completed year of service or part of the year in excess of 6 months; or Gratuity actually received.
(c)
Salary for this purpose means basic salary and dearness allowance In case of non government employees who are not covered by the payment of gratuity Act of 1972 Any gratuity received by any other employee on retirement, death, termination or resignation is exempt from tax to the extent of the least of the following; (a) (b) Rs. 3,50,000; or Half months salary (on the basis of last 10 months average immediately preceding the month in which any such event occurs) for each completed year of service (fraction to be ignored); or Gratuity actually received.
(c)
Salary for this purpose means basic salary, dearness allowance-if provided in terms of employment and commission as a percentage of turnover achieved by the employee.
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Note:
(a) (b)
(c)
Gratuity received during the period of service is always taxable Where gratuity is received by an employee from 2 or more employers in the same previous year then the aggregate amount of gratuity exempt form tax cannot exceed the above limits prescribed. In case where the employee has received gratuity in any earlier year from his former employer and also receives gratuity from another employer in a later year, the limit of Rs. 3,50,000 will be reduced by the amount of gratuity exempt from tax in any earlier year.
Commuted Pension [Sec 10(10A)]

Uncommuted pension refers to the pension periodically received by the employee. Commuted pension means lump sum amount taken by commuting the pension or part of the pension. Where an employee commutes, under pension rules, part of pension, the remaining portion will periodically received. Uncommuted pension is taxable as salary u/s 15 in the hands of both government and non-government employees. Any commuted pension received by a government employee is wholly exempt from tax. CBDT has clarified by circular number 623-dated 6-1-92 that judges of the High courts and Supreme courts are also entitled to the exemption. A non-government employee can avail exemption to the following extent (1) (2) If the employee is in receipt of gratuity, 1/3 of the full value of the pension. If the employee is not in receipt of gratuity, of the full value of the pension.
Leave Salary [sec. 10(10AA)]

Government employee: Any amount received as cash equivalent of leave in respect of period of earned leave to his credit at the time of retirement whether on superannuation or otherwise, is exempt from tax.
Non-Government Employees: Leave salary is exempt from tax to the extent of least of the following; Cash equivalent of the leave (on the basis of average of last 10 months salary) to the credit of the employee at the time of retirement (calculated at 30 days credit for each completed year of service); or 10months salary (on the basis of average of 10 months salary); or The amount specified by the government --- Rs. 3,00,000 Leave encashment actually received.
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Even in the case of voluntary retirement by way of resignation, leave salary received qualifies for exemption. Salary for this purpose means basic salary, dearness allowance if provided in terms of employment and commission as a percentage of turnover achieved by the employee. Note: 1. Leave salary received during the period of service is taxable 2. Where leave salary is received by an employee from 2 or more employers in the same previous year then the aggregate amount of leave salary exempt from tax cannot exceed the limits prescribed. 3. In case where the employee has received cash equivalent of earned leave in any earlier year from his former employer and also receives leave salary from another employer in a later year, the limit of Rs. 3,00,000 will be reduced by the amount of gratuity exempt from tax in any earlier year.
ALLOWANCES
The various allowances, which are allowed from the employer to the employees, are classified under three categories Fully taxable Allowances Partly taxable allowances or allowances exempted up to specified limit. Fully exempted allowances.
Fully Taxable Allowances. (1) (2) (3) (4) (5) (6) (7) (8) Dearness allowance or dearness pay Medical allowances Tiffin allowance Servant allowance Non-practicing allowance Warden allowance and proctor allowance Deputation allowance Overtime allowances
Partly taxable allowances or allowances exempted up to specified limit: (1) House Rent Allowance [sec. 10(13A)] House rent allowance granted to an assessee by his employer is exempt from tax to
Accounting for Management the extent of least of the following (a) (b)
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Excess of rent paid over 10% of salary, or If the accommodation is situated in Mumbai, Kolkatta, Chennai and Delhi--50% of salary If the accommodation is situated at any other places--- 40% of salary (c) Actual HRA received for the relevant period Exemption is not available to an assessee who lives in his own house; or in a house for which he does not pay any rent. Salary for this purpose means basic salary, dearness allowance if provided in terms of employment and commission as a percentage of turnover achieved by the employee calculated on due basis for the relevant period. Relevant period means the period during which the said accommodation was occupied by the assessee during the previous year.
(2) Any allowance granted to an employee working in any transport system to meet his personal expenses during his duty performed in the course of running of such transport form one place to another place is exempt from tax to the extent of 70% of such allowance or Rs. 6,000 per month, whichever is less (3) Transport allowance: any transport allowance granted to an employee to meet his expenditure for the purpose of commuting between the place of his residence and place of his duty to the extent of Rs. 800 per month. The same is exempted from tax up to Rs. 1,600 per month if it is given to an employee who is blind and/or physically handicapped. (4) Children Education Allowance: It is exempt from tax up to Rs. 100 per month per child up to a maximum of 2 children. (5) Children Hostel Allowance: It is exempt from tax up to Rs. 300 per month per child up to a maximum of 2 children.
Fully Exempted Allowances: (1) (2) (3) Foreign allowance Sumptuary allowance to High court and Supreme court judges Allowances from U.N.O
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PERQUISITES
Perquisites mean any casual emoluments fee or profit attached to an office or position in addition to salary or wages. It is a personal advantage--- something that benefits a man by going into his own packet. It does not cover a mere reimbursement of expenditure. The perquisites may in cash or in kind or in the form of benefits and amenities, whether they are convertible into money or not. The employer may provide it voluntarily or under service contract. For income tax purposes, the perquisites have been divided into three categories. Tax-free perquisites Taxable perquisites Perquisites taxable under specified cases. Tax-free Perquisites: The value of the following perquisites shall not be included in the salary income of an employee.
Medical benefits Tea and snacks or free food or beverages provided in office or factory (work place) or through paid vouchers where are nor transferable and usable only at eating joints. Facility of motor car(s) Residential accommodation provided at site Facility of club or health club and similar facilities Expenses on telephone including mobile phone Employers contribution to staff group insurance scheme Scholarship to employees or their children paid by the employer The facility of conveyance provided by the employer from residence to place of employment and vice versa Refreshment courses, etc. If the employer pays fees for an employee taking refresher course or management course in order to enable to the employee to perform his services more efficiently. Such expenses are treated as scholarship. Free rations to armed forces personnel Facility of guest house or holiday home Welfare expenses Entertainment expenses Free or concessional ticket provided by the employer (engaged in the business of
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transport) for private journeys of the employee or his family members. Any perquisites paid or allowed by the government to its employees who are posted abroad. The value of rent-free official residence and the value of conveyance facilities provided to a judge. The value of rent-free furnished residence (including maintenance thereof) provided to a minister, an officer of parliament or a leader of the opposition in parliament. Gifts in kind laptops and computers provided by the employer for personal use of employees or any member of his house hold Interest free or concessional loan, if the amount loan in aggregate does not exceed Rs. 20,000 during the previous year. Transfer without consideration to an employee of a movable asset (other than computers, electronic items and car) by the employer after using it for ten years or more. Periodicals and journals required for discharge of work
INCOME FROM HOUSE PROPERTY

Basis of Charge: The annual value of property consisting of any building or lands appurtenant thereto of which the assessee is the owner shall be chargeable to income tax under this head. However, the said excludes the property used by the assessee for the purpose of any business or profession carried on by him and profits of which are chargeable to income tax under the head profits and gains of business or profession. INCOME FROM OTHER SOURCES This is a residuary head of income and sweeps all such taxable income, profits and gains which are not chargeable to income tax under any of the first four heads specified above. It is important to note that where there is a specified head for the income in question and a specified section providing for the head, such income cannot be assessed under this residuary head, income from other sources. According to section 56(2), in a particular, the following incomes shall be chargeable to income tax under the head income from other sources. Dividend Lottery, crossword Puzzles, etc. Interest on securities. Hire of machinery, plant, etc. Hire of machinery, plant and buildings nor separately. Gift. Where any sum of money, the aggregate value of which exceeds Rs. 50,000, is received without consideration, by an individual or a HUF, in any
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previous year form any person or persons on or after 01-04-2006, the value of whole of the aggregate value of such sum.
INCOMES CHARGEABLE TO TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION [Section 28] (1) Profits and gains of any business or profession carried on by assesses at any time during previous year. (2) Compensation or other payment due to or received by any person (a) managing whole or substantially whole of affairs of an Indian company or any other company in India at or in connection with the termination of his management or modification of the terms and conditions relating thereto; (b) on termination or modification of contract of his agency in India; (c) For vesting the management of any property or business in Government or any corporation owned or controlled by the Government. (3) Income derived by trade, professional or other similar association from specific services rendered to its members. This clause is an exception to general rule that income from mutual activity is not chargeable to tax. (4) Profits on sale of import licence; or Profits on transfer of Duty Entitlement Pass Book (DEPB) or Duty Free Replenishment Certificate (DFRC) under EXIM Policy; (5) Cash assistance against exports from Government of India and Duty Drawback; (6) Value of any benefit or perquisite, whether convertible into money or not arising from exercise of business or profession; (7) Interest, salary, bonus, commission or remuneration due to or received by partner from the firm. Such income is taxable in hands of partners to the extent it is allowed as deduction in hands of firm. Any amount not allowed as deduction to firm under Section 40(b), is not taxable in the hands of partner. (8) Any sum received or receivable, in cash or in kind, under an agreement for (a) Non-competition i.e. not carrying out any activity in relation to any business; or (b) Exclusivity i.e. not sharing any know-how, patent, copyright, trademark, license, franchise or any other business or commercial right of similar nature or information or technique likely to assist in the manufacture or processing of goods or provision of services.
Exceptions : However, sum received for transfer of business, or transfer of right to manufacture, produce or process any article/thing, which is chargeable under Capital Gains is not taxable under this Section. (9) Any sum (including bonus) received under Keyman Insurance Policy.
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INCOME FROM CAPITAL GAINS 1. Chargeability u/s 45 Profits or gains arising from the transfer of a capital asset is chargeable to tax in the year in which transfer take place under the head "Capital Gains". Definitions Transfer: Sec. 2(47): Transfer in relation to a capital asset includes sale, Exchange, or relinquishment of the asset or extinguishment of any rights therein or the compulsory acquisition thereof under any law or conversion of the asset by the owner in stock-intrade of a business carried on by him or the maturity or redemption of a zero coupon bond. Capital Asset: Sec. 2(14): Capital Asset means property of any kind (Fixed, Circulating, movable, immovable, tangible or intangible) whether or not connected with business or profession. Exclusions a. Stock-in-trade b. Personal effects of the assessee c. Agricultural land in a rural area d. 6% Gold Bonds, 1977 or 7% Gold Bonds, 1980 or National Defence Bonds, 1980 issued by the Central Government e. Special Bearer Bonds, 1991 issued by the Central Government. f. Gold Deposit Bonds issued under Gold Deposit Scheme 1999 Short-term capital asset: Sec. 2(42A): means a capital asset held by an assessee for not more than thirty six months immediately preceding the date of its transfer. However, in the following cases, an asset, held for not more than twelve months, is treated as shortterm capital asset a. Quoted or unquoted equity or preference shares in a company
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Circular No. 495 dated 22.9.1987 explaining amendments by Finance Act, 1987 whereby unquoted shares of a private limited company also if held more than 12 months falls in the category of LTCG. Also Refer the Judgment in 120 TTJ 699 for unquoted shares held for less than 36 months. b. Quoted Securities c. Quoted or unquoted Units of UTI d. Quoted or unquoted Units of Mutual Funds specified u/s. 10(23D) e. Quoted or unquoted zero coupon bonds Long-term capital asset: Sec. 2(29A): means a capital asset which is not a short-term capital asset 2. Year of chargeability to tax Capital gains are generally charged to tax in the year in which transfer takes place. Exceptions a. Sec. 45(1A) Insurance Claim In the year of receipt. b. Sec. 45(2) Conversion of capital asset into stock-in-trade In the year of actual sale of the stock. c. Sec. 45(5) Compulsory acquisition When consideration or part thereof is first received. Exempt Capital Gains under Section 10 10(33) : Transfer of US 64 on or after April 1, 2002 10(37) : Compulsory acquisition of Urban Agriculture Land where consideration is received after March 31, 2004.
Long-term capital gain arising on transfer on or after 10(38) : October 1, 2004 of equity shares or units of equity oriented mutual fund and the STT is paid at the time of transfer
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Income Tax Deductions u/s 80C One can get following income tax deductions with qualified investments u/s 80C are as appended below: Section Details Quantum of Deduction Life Insurance Premium, PPF, NSC, EPF, 5-year Fixed Deposit, Post Office Maximum Rs 100000 Senior Citizen Saving Scheme, ELSS, Tuition Fees including Admission fees or college fees paid for full time education of any two childrens, Housing Loan Principal Repayment
80C
Income Tax Deductions u/s 80CCC One can get following income tax deductions with qualified investments u/s 80CCC and same are as appended below: 80CCD Notified pension scheme like NPS Max 10% of salary or 10% of GTI, as case may be
Profit in lieu of salary

Profit in lieu of salary is a part of salary income and accordingly it is taxable under the head Income from Salary. Profit in lieu of salary means any payment made to an employee on lieu of salary even if the same has no connection with the profits
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of the employer. The word profit is used only to convey any advantage or gain by receipt of any payment by the employee. As per the Income Tax Act, 1961 Profit in lieu of salary includes the following: 1. Any compensation due to or received by an assessee from his employer or former employer at or in connection with the termination of his employment or the modification
of the terms & conditions relating thereto is taxable as profit in lieu of salary. The recipient may however claim exemption u/s 10(10B) or 10(10C), if eligible. 2. Any payment (except to the extent it is specifically exempt u/s 10) due to or received by an employee from his employer or former employer or from a provident fund, or other fund (to the extent it does not consist of contributions made by the assessee or interest thereon) which may otherwise be taxable as income from salary. It may be noted that the assessee is entitled to exemption to the prescribed extent in respect of the following payments received by hima. Payment of Gratuity u/s 10(10); b. Payment of commuted pension u/s 10(10A); c. Payment of retrenchment compensation u/s 10(10B); d. Payment from statutory provident fund and public provident fund u/s 10(11); e. Payment from recognized provident fund u/s 10(12); f. Payment from an approved superannuation fund u/s 10(13); g. Payment of House Rent Allowance (HRA) u/s 10(13A). 3. Payment from unrecognized provident fund or superannuation fund to the extent it does not consist of contribution by the employee or interest on employees contribution (at the time of payment to the employee). 4. Any sum received under a Keyman insurance policy including the sum allocated by way of bonus on such policy is taxable as profit in lieu of salary. 5. Any amount received in lump sum or otherwise from any person prior to his joining employment or after cessation of employment with that person.
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RATES OF INCOME-TAX A. Normal tax: Rates of
Where the total income does Nil not exceed Rs. 1,80,000/-. Where the total income 10 per cent of the amount by which the total income exceeds Rs. exceeds Rs. 1,80,000 but 1,80,000/does not exceed Rs. 5,00,000/Where the total income Rs. 32,000/- plus 20 per cent of the amount by which the total exceeds Rs. 5,00,000/- but income exceeds Rs. 5,00,000/-. does not exceed Rs. 8,00,000/-. Where the total income Rs. 92,000/- plus 30 per cent of the amount by which the total exceeds Rs. 8,00,000/-. income exceeds Rs. 8,00,000/-. B. Rates of tax for a woman, resident in India and below sixty years of age at any time during the financial year:
Where the total income does Nil not exceed Rs. 1,90,000/-. Where the total income 10 per cent, of the amount by which the total income exceeds Rs. exceeds Rs. 1,90,000 but 1,90,000/does not exceed Rs. 5,00,000/-. Where the total income Rs. 31,000/- plus 20 per cent of the amount by which the total exceeds Rs. 5,00,000/- but income exceeds Rs. 5,00,000/-. does not exceed Rs. 8,00,000/-. Where the total income Rs. 91,000/- plus 30 per cent of the amount by which the total exceeds Rs. 8,00,000/-. income exceeds Rs. 8,00,000/-. C. Rates of tax for an individual, resident in India and of the age of sixty
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years or more but less than eighty years at any time during the financial year:
Where the total income does Nil not exceed Rs. 2,50,000/-. Where the total income 10 per cent, of the amount by which the total income exceeds Rs. exceeds Rs. 2,50,000 but 2,50,000/does not exceed Rs. 5,00,000/-. Where the total income Rs. 25,000/- plus 20 per cent of the amount by which the total exceeds Rs. 5,00,000/- but income exceeds Rs. 5,00,000/-. does not exceed Rs. 8,00,000/-. Where the total income Rs. 85,000/- plus 30 per cent of the amount by which the total exceeds Rs. 8,00,000/-. income exceeds Rs. 8,00,000/-. D. In case of every individual being a resident in India, who is of the age of eighty years or more at any time during the financial year:
Where the total income does Nil not exceed Rs. 5,00,000/Where the total income2 0 per cent of the amount by which the total income exceeds Rs. exceeds Rs. 5,00,000/- but 5,00,000/does not exceed Rs. 8,00,000/Where the total income Rs. 60,000/- plus 30 per cent of the amount by which the total exceeds Rs. 8,00,000/income exceeds Rs. 8,00,000/Income Tax rates After Budget 2012-13 is available here 1. Surcharge on Income tax: There will be no surcharge on income tax payments by individual taxpayers during FY 2011-12 (AY 2012-13). 2. Education Cess on Income tax: The amount of income-tax shall be increased by Education Cess on Income Tax at the rate of two percent of the income-tax. 3. Additional surcharge on Income Tax (Secondary and Higher Education Cess on Income-tax):From Financial Year 2007-08 onwards, an additional surcharge is chargeable at the rate of one percent of incometax (not including the Education Cess on income tax). 4. Education Cess, and Secondary and Higher Education Cess are payable by both resident and non-resident assessees.

Mba I Accounting For Management (12mba14) Notes

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Mba I Accounting For Management (12mba14) Notes

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Accounting for Management

Accounting for Management

Accounting for Management

To maintain Accounting records

To calculate the results of operations

To ascertain the financial position

To communicate the information to others

Accounting for Management

Importance or Uses of Accounting

7. Assists the management

Accounting for Management

Accounting for Management

Accounting Conventions & Concepts

Generally Accepted Accounting Principles (GAAPs)

Basic Principles of Accounting

Accounting for Management

Accounting for Management

Accounting for Management

Importance or Advantages of setting Accounting standards

Users of Accounting Information

Accounting for Management

enterprises to ensure efficient operation of capital markets. 9. General Public

Module II Preparation of books of original records Meaning & Classification of Accounts

Accounting for Management

Accounting for Management

Accounting for Management 18 Purchased a cycle for Rs.680 Trial Balance

Accounting for Management

Accounting for Management

Accounting for Management

Accounting for Management

Accounting for Management

Accounting for Management

Accounting for Management

Preparation of Final Accounts / Statements

Accounting for Management

Gross profit Salaries General exp Depn.on furniture Provision for

67,800 Rent 7,000 500 650

Accounting for Management

Doubtful debts 250 Discount recd. 1,850 Int. on investment Postage

Accounting for Management

Accounting for Management

Accounting for Management

Module-4 Analysis of Financial Statement

Accounting for Management simplified.

Different tools of financial Analysis

(in lakhs 1987 Rs. 800 1988 Rs. 1000

1000 (in lakhs

1987 Rs. 50 150 100 100 300 400 200 1,300

1988 Rs. 75 200 150 150 300 400 245 1, 520

Assets Cash Sundry Debtors Stock Land Building Plant Furniture

Accounting for Management

COMPARATIVE FINANCIAL STATEMENTS

800 600 200

1000 750 250

-+10 +20 +40

-+33.33 +20 +26.67

Accounting for Management

Absolute increase(+) or decrease (-) in 1988 Rs.

Absolute increase (+) or decrease(-) in 1988 %

Accounting for Management

ASSETS Current Assets Cash Debtors Stock Total Current Assets

100 200 200 500

140 300 300 740