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7/31/2019 Manac(Gmp), Session 1
1/12
A Brief Introduction to Mechanics &Princi les o Recordin Accountin
Transactions
Prof. Santosh Sangem
XLRI, Finance Area
Management Accounting Sessions 1-2, GMP 2012-13. Prof. Santosh Sangem (XLRI)
7/31/2019 Manac(Gmp), Session 1
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A coherent set of principles for recording transactions of business& non-business entities
Focus on business entities
A business entity is an organization that manages productiveresources to provide products and services to customers with theobjective of earning profit
Sole proprietorship
Partnership
orporat on
Limited Liability Corporation/Partnership
Management Accounting Sessions 1-2, GMP 2012-13. Prof. Santosh Sangem (XLRI)
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Management Accounting Sessions 1-2, GMP 2012-13. Prof. Santosh Sangem (XLRI)
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Provides information to stakeholders
Decision makin b mana ement
Investment decisions of investors Government & regulatory agencies
Customers & roviders of resources
Information relating to financing, investing, & operating activities
of the business entity
Two branches of accounting
Financial Accounting
Managerial Accounting
Management Accounting Sessions 1-2, GMP 2012-13. Prof. Santosh Sangem (XLRI)
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A structured representation of the financial position and financial
erformance of an entit (Ind AS 1)
Principles for recording business transactions that affect financialposition
Ensuring comparability over time and across firms
Categorization of business transactions Operating
Investing
Management Accounting Sessions 1-2, GMP 2012-13. Prof. Santosh Sangem (XLRI)
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Economic Transactions
Business transactions that affect financial
osition & erformance
Economic TransactionsRecognition
Management Accounting Sessions 1-2, GMP 2012-13. Prof. Santosh Sangem (XLRI)
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Basic assumptions/concepts underlying
AccountingGoing
equateDisclosure
n oMeasure Objectivity
HistoricalCost
Prudence Materiality
Matchin
Management Accounting Sessions 1-2, GMP 2012-13. Prof. Santosh Sangem (XLRI)
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The most basic of the basic concepts
recorded That is, the entity is viewed as separate from its owners, creditors,
,
Boundaries on transactions to be recorded
Defines the nature of the transaction
Example:
A computer purchased by a sole proprietor and used for both
treated as an asset of the business.
A sale made to a customer cannot be recorded in the books of the
Management Accounting Sessions 1-2, GMP 2012-13. Prof. Santosh Sangem (XLRI)
en y as a purc ase ma e y e cus omer.
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The assumption that the entity will continue in business forever
recorded at current market value Examples
te ecom company as een str ppe o a operat ng censes towned on the grounds of fraudulent conduct during the spectrum
auction process. The company has also been barred frompart c pat ng n spectrum auct ons or t e next years.
A company has a large portion of its long-term debt falling due in thenext 3 months. The company is in no position to raise the money
required to repay the debt nor are the lenders willing torefinance/restructure the debt.
Management Accounting Sessions 1-2, GMP 2012-13. Prof. Santosh Sangem (XLRI)
bankers leading them to request the court for its liquidation
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Financial statements are to be prepared periodically to help
external stakeholders to continuousl evaluate the financial
position of the entity A typical accounting period is one year
performance.
Disclose reasons if statements prepared for a period different thanone year
Examples:
Durin the late 1 0s man com anies in India resented theirannual accounts for a period of either 9 months or 15 months onaccount of transition to the statutory requirement of presenting
-
Management Accounting Sessions 1-2, GMP 2012-13. Prof. Santosh Sangem (XLRI)
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Requires that all relevant information needed by shareholders to
understand the financial statements and to evaluate financialperformance be disclosed
Minimum disclosure requirements specified by the accounting
Central feature of corporate governance standards and regulatory
principles xamp es:
RG garments did not disclose the fact that during the year it wasrequired to pay Rs. 20 crores as penalty for violating the customs
duty and forex laws. A large number of companies in the US have at some time or the
Management Accounting Sessions 1-2, GMP 2012-13. Prof. Santosh Sangem (XLRI)
obligations under derivative contracts.
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Entries in accounting records & information presented in financialstatements must be based on ob ective or verifiable evidence
Reduces the chance of fraudulent behavior Necessary to avoid subsequent legal liabilities
xamp es:
At the beginning of the year, ABD Garments Ltd. recorded the
purchase of a second hand delivery vehicle for Rs.25 lakhs fromDBA Garments Co., an entity owned by its managing director. Atthe end of the year, a physical inspection showed that the vehiclewas not in the premises of ABD Garments and that the registration
papers had also not been transferred.
Management Accounting Sessions 1-2, GMP 2012-13. Prof. Santosh Sangem (XLRI)