March 2018 - icmai.in

1 First Edition : March 2018 Completed By : Academics Department The Institute of Cost Accountants of India. Published By : Directorate of Studies The Institute of Cost Accountants of India 12, Sudder Street, Kolkata 700 016 Copyright of these study notes is reserved by the Institute of Cost Accountants of India and prior permission from the Institute is necessary for reproduction of the whole or any part thereof. work book Directorate of Studies, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) COST & MANAGEMENT accounting AND FINANCIAL MANAGEMENT INTERMEDIATE GROUP II PAPER 10 INDEX Sl.

2 No. Section A Cost & Management accounting Page No. 1 Cost & Management accounting 1 4 2 Decision Making Tools 5 26 3 Budgeting & Budgetary Control 27 33 4 Standard Costing and Variance Analysis 34 43 5 Learning Curve 44 45 Section B Financial Management 6 Introduction to Financial Management 46 49 7 Tools for Financial Analysis & Planning 50 57 8 Working Capital Management 58 68 9 Cost of Capital, Capital Structure Theories, Dividend Decisions & Leverage Analysis 69 83 10 Capital Budgeting 84 - 95 work book : Cost & Management accounting and Financial Management Directorate of Studies, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 1 Study Note 1 COST AND MANAGEMENT accounting Section - I 1.

3 Answer the following questions: (a) Choose the correct answer from the given four alternatives. [1x 6 = 6] (1) Management accounting is an integral part of management concerned with_____ information. (a) identifying, presenting and interpreting (b) identifying and presenting (c) identifying (d) None of the above (2) Management accounting is related with _____. (a) formulating strategy (b) planning and controlling activities (c) optimizing the use of resources (d) All of the above (3) Despite the development of Management accounting as an effective discipline to improve the managerial performance, it has some limitations.

4 Which of the following is a limitation of management accounting ? (a) Psychological Resistance (b) Physiological Resistance (c) Both of the above (d) None of the above (4) The primary objective of Management accounting is to _____. (a) maximize profits (b) minimize losses (c) maximize profits or minimize losses (d) All of the above (5) Management accounting is concerned with data collection from _____. (a) internal sources (b) external sources (c) internal and external sources (d) internal or external sources work book : Cost & Management accounting and Financial Management Directorate of Studies, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 2 (6) Management accounting is concerned with accounting information, which is useful to the management.

5 This definition is given by _____. (a) Robert N. Anthony (b) Brown and Howard (c) CIMA (d) The Institute of Chartered Accountants of England and Wales Ans: 1-a; 2-d; 3-a; 4-d; 5-c; 6-a (b) Match the statement in column I with the most appropriate statement in column II: Column I Column II 1. Management accounting a. suitable information to internal and external users 2. Fiduciary accounting b. suitable information to operation management 3. Financial accounting c. suitable information to internal users 4. Cost accounting d. suitable information to third party Ans: 1-c; 2-d; 3-a; 4-b (c) State whether the following statements are true or false: (1) Management accounting is a traditional approach to accounting (2) The information in the management accounting system is used for three different purposes.

6 (3) Management accounting helps in decision making only, not in strategic decision making. (4) The scope of Management accounting is broader than the scope of Cost accounting . (5) As the reports generated by management accounting are not used by any external party, the business enterprises don t need to take care of GAAP. (6) Management accounting records are kept for public. 1-F;2-T;3-F;4-T;5-T;6-F Section - II 2. Short notes on (a) Objectives of Management accounting Management accounting comprises the preparation of financial reports for management groups such as shareholders, creditors, regulatory agencies and tax authorities.

7 The fundamental objective of management accounting is to enable management to maximize profits or minimize losses. Following are the important objectives or purposes of management accounting : work book : Cost & Management accounting and Financial Management Directorate of Studies, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 3 1. Policy formulation- Policy formulation and planning are the primary functions of management. The object of management accounting is to supply necessary data to the management for formulating plans.

8 The figure supplied and opinion given by the management accountant helps management in policy formulation. 2. Helpful in decision making- The management is required to take various important decisions. Management accounting techniques help in collecting and analyzing data relating to cost, volume and profit which provide a base for taking sound decision. 3. Helpful in controlling- Management accounting is a useful device of managerial control. Various accounting techniques such as standard costing and budgetary control are helpful in controlling performance.

9 The actual results are compared with pre-determined targets to know the deviations. 4. Motivation- Another important objective of management accounting is to help the management in selecting best alternatives of doing the things. Delegation of authority as well as responsibility increases the job satisfaction of employees and encourages them to look forward. 5. Interpretation of financial information- Financial information is of technical nature and must be presented in such a way that it can be easily understood. It is the duty of management accountant who uses statistical devices like charts, diagrams etc.

10 So that the information can be easily understandable. (b) Strategic management accounting The term strategic management accounting applies to the identification, measurement and communication of cost data in all these situations where the organisation is being judged against the performance of competitors. The traditional approach to management accounting has been to regard internal decision makers as inward looking. This has led to developing techniques for identifying, measuring and communicating costs where only internal comparisons have been thought relevant.