Managerial Accounting(2-2 Marks Question)

8/14/2019 Managerial Accounting(2-2 Marks Question)

1/27

1

Rules of recording financial transactions

in journal Personal Account:-According to the rule of debit the receiver

the personal account of person to whom we give some moneyor goods is debited.

In the same way, according to the rule of credit the giverthe personal account of the person from whom we receive

some money or goods is credited. Real Account:-According to the rule of debit what comes inand credit what goes out" the account of the cash, goods orother property which is received by the business firm is debitedand in the same way, the account of cash, goods or other

property which goes out of the business is credited. Nominal Account:-According to the rule of debit all expenses

the accounts of all expenses and losses are debited.Similarly, according to the rule of" credit all income and

gains the accounts of all income and profits are credited.


2/27

2

Concept of Depreciation

According to R.N. Carter, depreciation is the gradual and permanent decrease inthe value of an asset from nay cause.

According to William Pickles, depreciation may be defined as the permanent and

continuing decrease in the quality, quantity or the value of an asset.

Causes of depreciation

By constant use

By accident

By Obsolescence

By expiry of legal rights

Methods of providing depreciation

! 1)Straight line method 2) Written down value method


3/27

3

Factor affecting amount of

Depreciation Total cost of asset:-

The cost of a fixed asset is determined after adding all expensesincurred for bringing the asset to usable condition such as freight,installation cost,etc.

Estimated useful life of an asset:-Useful life of an asset is estimated in terms of number of years,

it can be effective for business operations. Estimated scrap value:-

It is the estimated sale value of an asset at the end of its usefullife. Also called as residual value or break-up value. For example, aplant is purchased for Rs 1,00,000 and estimated its serviceable lifewill be 10 years. Scrap value is 8,000.

Depreciation charged on plant will be =

9200.10

8000100000Rs=


4/27

4

Meaning of Cost Sheet Cost Sheet is a statement which is used to determine the

total cost of goods produced or units in a specific period and

in which total cost, per unit of cost and the cost incurred atvarious stages from manufacturing a products to the stage ofmaking it saleable are shown. This statement as perconvenience, can be prepared on weekly, monthly orquarterly intervals.

According to ICMA London, Cost Sheet is a document whichprovides for the assembly of the detailed cost of a cost centre

or cost unit. Advantages of Cost Sheet

Determination of selling price Control on expenses

Helpful in minimizing the expenses

Benefit to common man


5/27

Functions of Management Accounting

Any form of accounting which enables abusiness to be conducted more efficiently, canbe regarded as management accounting.

-Institute of Charted Accounts of England and Wales. ::

Functions

Helpful in planning and forecastingHelpful in planning and forecasting

Supply information to various levelsSupply information to various levelsTo help in Co-ordination and communicationTo help in Co-ordination and communication

Collection of Qualitative information also


6/27

6

Concept of Flexible Budget Flexible Budget is that budget which presents costs, revenues and profits at various

levels of business activity i.e., various volumes of output and sales.

According to ICMA London, Flexible Budget may be defined as a budget which isdesigned to change in accordance with the level of activity attained.Importance of Flexible Budget

Advantages or marginal analysis

Comparison with actual performance

More practical Need of Flexible Budget

Where there are chances of change in level of activity due to change in governmentpolicies

Where production is carried out only after receiving the customers order

Where the supply of labour and material required for production are uncertain. Where the demand goes changing due to change in taste and fashion of customers


7/27

7

Describe Money Measurement Concept

According to this concept, only those

transactions are recorded in accounting bookswhich can be measured in terms of money. Anevent, even though it may be very important forthe business, will not be recorded in the books if

the effect of that event cannot be measured interms of money. For example, accounting doesnot record a quarrel between manager andemployees.

As such to make accounting records relevant,simple and understandable, they are expressedin a common unit of measurement,i.e.,money.


8/27

8

Basis ofBasis ofdifferencedifference

Standard costingStandard costing Budgetary controlBudgetary control

Meaning It is a pre-determined cost,which determines what each

product or service should costunder given condition

Budgetary control is a tool omanagement control and

accounting which directs andco-ordinates the workingoperations on the basis obudget.

BasisThese are fixed on the basis oftechnical information

These are fixed on the basis opast records and futureexpectations

Relation-

ship

These are related to costaccount

These are related to finalaccount

Scope Limited as it is related withvarious elements of cost inproduction deptt.

Wide scope as it coversalmost all the departments


9/27

9

Accounting Standards may be defined as written statementsor guidelines issued from time to time by institutions of

Accounting professionals, specifying uniform rules orpractices for preparing the financial statements.

According to Kohler,Accounting Standards are a mode ofconduct imposed on Accountants by custom, law or

professional body.Advantages of Accounting Standards

AS significantly reduce the chances of manipulation andfrauds

AS ensure the consistency and comparability of financial

statements AS improve the reliability and credibility of financial

statements

AS help in resolving conflicts of financial interests among

various groups.

hat are Accounting Standards (AS)


10/27

10

Explain Margin of Safety(MOS) Margin of Safety is the difference between actual total sales and B.E.P.MOS can be

calculated in rupees or in units .

MOS in Rupees:- 1) MOS(Rs)=Sales(Rs)-BEP(Rs) 2) MOS(Rs)=

MOS(in units):-1) MOS(in units)= Sales(units)-BEP(units)

2) MOS(in units)=

Importance of Margin of Safety:-

MOS is an important indicator of strength of the business. If MOS is large, theposition business will be sound. It will have more opportunities to earn profit. IfMos is small, a small reduction in sales can be a serious matter and may result

even in loss.

VratioP

profit

/

perunitoncontributi

profit

.


11/27

11

Explain Material mix variance(MMV)

MMV is that part of material variance which arises due tochange in standard and actual composition of mix. Ifmaterial mix used in production is of higher price andlarger in quantity than the standard mix and material mixwill be more and vice versa. The variance can be

calculated under two situations-

When TSQ=TAQ,then MMV=SP(SQ-AQ)

When TSQ TAQ,then MMV=SP(RSQ-AQ)

here,RSQ=

TAQTSQ

SQ


12/27

12

Assumptions of Break even point The Break even point is that point of sales volume where

total revenue add total expenses are equal, it is also said as

the point of zero profit or zero loss.

Assumptions:-

Fixed and variable cost Certain and constant fixed cost

Unchanged sales-mix-There is only one product. If severalproducts being produced and sold, sales-mix will remain

constant Technological stability


13/27

13

Define costing and nature of cost

accounting. Costing:-

The technique and process of ascertaining cost is calledcosting. Here technique refers to principles and rules which are appliedfor ascertaining cost like marginal costing standard costing,etc.

Cost Accounting:-

It may be defined as the body ofconcepts,methods,techniques and procedures used to compute andestimate the costs, profitability and performance of individual products,services and segments of an enterprise.

Nature of cost accounting:-

Specialized branch of accounting Art and science both Helpful to management


14/27

14

Explain break even chart and Zero base

budgeting Break even chart:-

It is a graphical presentation showingrelationship between cost, volume and profit. Itshows the Break even point and also indicates theestimated cost and profit or loss at various

volumes of activity. Zero base budgeting:-It is the latest technique of budgeting and

first used in America in 1962.In this, every year istaken as a new year and previous year is not takenas base. The budget for this year will have to be

justified according to present situations. Itsapproach is towards achievement of objectives andfocus on cost benefit analysis.


15/27

15

Explain usefulness of cost accounting in

modern day business organizations

Cost Accounting:- It may be definedas the body of concepts,methods,techniques andprocedures used to compute and estimate the costs,profitability and performance of individual products, services

and segments of an enterprise.

Advantages of cost accounting:- Control on wastage of material and labour

Proper utilization of plant Economy in cost

Periodical profit and loss account

D fi B d B d i d B d


16/27

16

Define Budget, Budgeting and Budgetary

controlo Budget:-

Budget is an estimate of future needs arranged according to an

orderly basis being covering some or all the activities of an enterprise

for a definite period of time

o Budgeting:-

Budgeting is a wider process which includes preparation relatedto budget, decisions related to various problems arising in Budget,

implementation of budget and control on the basis of budget.

o Budgetary control:-

Budgetary control is a tool of management control and accountingwhich directs and co-ordinates the working operations on the basis of

budget. If there are variances in actual results, then either they are

corrected or budget is modified so that the objective of maximum

efficiency as per the policy of management may be achieved.


17/27


18/27

18


Trade discountTrade discount Cash discountCash discount

Meaning Allowed at the time of sale

to the customer at a fixedpercentage on printed listprice

It is allowed if the

customer makes thepayment immediately orwithin a fixed period

Object It is allowed to the

retailers to enable them tosell the goods to theircustomers at list price

It is allowed to

encourage quickpayment

Recording

in books

Not recorded in books Recorded in books

Deductionfrom invoice

It is deducted from invoiceIt is not deducted frominvoice


19/27

19

Profit- Volume Ratio(P/V ratio)Profit- Volume Ratio(P/V ratio) P/V ratio is an important ratio for studying the profitability of

operations of a business. It is also called Contribution ratio, Marginal

income percentage or contribution/sales ratio. It is a ratio ofcontribution to sales and is expressed generally in terms ofpercentage.

P/V ratio can be calculated as-

P/V Ratio =

=

=

100sales

oncontributi

100cosvar

sales

tiableSales

100cos.

+

sales

profittFixed


20/27

20

Accounting Process with Diagram Also called Accounting Cycle

Recording of financial transactions only

Recording

Classifying

Summarizing

Recording in terms of money

Interpretation of the results

M i f t f B d t t l d


21/27

21

Main features of Budgetary control and

what are the requisties for a successful

Budgetary control.Features Continuous comparison

Revision

Co-ordination

Establishment

Requisties

Clarifying Objectives

Proper delegation pf authority and responsibility

Participation of all employees

Flexibility


22/27

22

Types of Budget

On the basis of period:-

Long term budget

Short term budget

Current budget

On the basis of Flexibility:-

Fixed budget

Flexible budget

On the basis of Functions:-

Sales budget

Production budget

Cash budget

Master/Comprehensive budget


23/27

23


JournalJournal LedgerLedger

Meaning It is a book of original entry in

which transactions arerecorded first of all as andwhen they take place

The book which contains a

classified and permanenrecord of all the transactions iscalled ledger

Accuracy Accuracy of these bookscannot be tested

Accuracy of these books istested by preparing trial

balancePage number Page no. of ledger i.e. Ledger

Folio(L.F.)is written in thesebooks

Page no. of journal i.e. JournalFolio(J.F.)is written in thesebooks

Recording oftransactions

Full details of transactions arerecorded in these books

Full details of transactions arenot recorded in these books.


24/27

24

What are Financial Statements Financial Statements refer to such statement which report

the profitability and financial position of the business at the

end of accounting period. The term Financial Statements include at least two basicstatement which are as under

Incomestatement(or trading and profit and loss account)which shows results of business operations during an

accounting periodStatement of financialposition(or balance sheet) which

shows financial position of business at a specified point oftime.

Users of Financial Statements

InvestorsCreditorsEmployeesGovernment


25/27

25

Tools ofManagement accountingManagement accounting Management accounting is essential to help mgt.inManagement accounting is essential to help mgt.in

formulating policies and plans.formulating policies and plans.

According to Anglo-American Council on Productivity,According to Anglo-American Council on Productivity,Management accounting is the presentation ofManagement accounting is the presentation ofaccounting information in such a way as to assistaccounting information in such a way as to assistmanagement in the creation of policy and the day-to-daymanagement in the creation of policy and the day-to-dayoperation of an undertakings.operation of an undertakings.

Tools and TechniquesTools and Techniques

Financial policy and accounting

Budgetary control Standard costing Decision accounting Control accounting


26/27


27/27

27

Documents

Managerial Accounting(2-2 Marks Question)