Accounting for Managers

14MBA13

Model Question Bank Solution

Module 1
1. Explain any 7 users of financial statements in brief.
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.
Facilitates to ascertain financial position
Accounting facilitates to ascertain financial position by preparing Balance Sheet.
Facilitates the users to take decisions
Accounting facilitates the users to take decisions by communicating accounting information
to them.
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.
Assists the management
Accounting assists the management in planning and controlling business activities and in
taking decision.
2. Explain Accounting concept and conventions
1. 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

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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.
Accounting conventions
1. 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.
2. 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.
3. 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.)
4. 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

3. Define Book keeping

Bookkeeping, in business, is the recording of financial transactions, and is part of the process of
accounting.[1] Transactions include purchases, sales, receipts and payments by an individual or
organization. The accountant creates reports from the recorded financial transactions recorded by
the bookkeeper and files forms with government agencies. There are some common methods of
bookkeeping such as the single-entry bookkeeping system and the double-entry bookkeeping
system. But while these systems may be seen as "real" bookkeeping, any process that involves
the recording of financial transactions is a bookkeeping process.

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Bookkeeping is usually performed by a bookkeeper. A bookkeeper (or book-keeper), also known

as an accounting clerk or accounting technician, is a person who records the day-to-day financial
transactions of an organization. A bookkeeper is usually responsible for writing the "daybooks".
The daybooks consist of purchases, sales, receipts, and payments. The bookkeeper is responsible
for ensuring all transactions are recorded in the correct day book, suppliers ledger, customer
ledger and general ledger.
4. State the different types of accounting
Financial Accounting, or financial reporting, is the process of producing information for external
use usually in the form of financial statements. Financial Statements reflect an entity's past
performance and current position based on a set of standards and guidelines known as GAAP
(Generally Accepted Accounting Principles). GAAP refers to the standard framework of
guideline for financial accounting used in any given jurisdiction. This generally includes
accounting standards (e.g. International Financial Reporting Standards), accounting conventions,
and rules and regulations that accountants must follow in the preparation of the financial
statements.
Management Accounting produces information primarily for internal use by the company's
management. The information produced is generally more detailed than that produced for
external use to enable effective organization control and the fulfillment of the strategic aims and
objectives of the entity. Information may be in the form budgets and forecasts, enabling an
enterprise to plan effectively for its future or may include an assessment based on its past
performance and results. The form and content of any report produced in the process is purely
upon management's discretion.

Module 2
1. What is contra entry?
An account found in an account ledger that is used to reduce that value of a related account.
Items recorded in the contra account are specifically designed to offset other transactions, and
are recorded as the opposite type of entry. If a debit is recorded in a related account, the contra
account record will be a credit.
2. What is journal? How is it different from ledger?
he process of gathering and storing Financial Transaction data in the Accounting System is
accomplished through the use of both:

Ledgers: which maintain Account Balances

Journals: which maintain the line by line detail of each Transaction.

Ledgers:
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Im starting with Ledgers because weve gone through the basic organization of the Accounting
System from Double Entry (debit/credit) Transaction Posting, to the Chart of Accounts and
finally the General Ledger. Ill stay on the topic of the General Ledger first and then back up to
the Journals where each transaction is originally posted.
In Accounting, there are two types of Ledgers, the General Ledger (Book of final entry) and
Subsidiary (Sub) Ledgers. The Accounts for the General Ledger come from the Chart of
Accounts. The Accounts for the Sub ledgers depend on the specific purpose of the Sub ledger.
If you remember in the Chart of Accounts - Basics, I said that Accounts should only be created
to describe types of things not individual things themselves. Well, in some cases especially in the
case of cash substitutes like Accounts Payable and Accounts Receivable more detail is required.
So, to maintain the summary nature of the Chart of Accounts/General Ledger and to provide
more detail, Subsidiary (Sub) Ledgers were developed.
Everything that is posted into Sub ledgers is also posted into the General Ledger and they act
together to provide progressive levels of detail/summary.

Module 3
1. Differentiate between Trial balance and balance sheet
A trial balance is an internal report that will remain in the accounting department. It is a listing
of all of the accounts in the general ledger and their balances. However, the debit balances are
entered in one column and the credit balances are entered in another column. Each column is
then summed to prove that the total of the debit balances is equal to the total of the credit
balances.
A balance sheet is one of the financial statements that will be distributed outside of the
accounting department and is often distributed outside of the company. The balance sheet is
organized into sections or classifications such as current assets, long-term investments, property,
plant and equipment, other assets, current liabilities, long-term liabilities, and stockholders'
equity. Only the asset, liability, and stockholders' equity account balances from the general
ledger or from the trial balance are then presented in the appropriate section of the balance sheet.
Totals are also provided for each section to assist the reader of the balance sheet. The balance
sheet is also referred to as the statement of financial position or the statement of financial
condition.

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Module 4
1. Write a short note on comparative, common size, trend analysis and ratio analysis
A statement which compares financial data from different periods of time. The comparative
statement lines up a section of the income statement, balance sheet or cash flow statement with
its corresponding section from a previous period. It can also be used to compare financial data
from different companies over time, thus revealing the trend in the financials
A company financial statement that displays all items as percentages of a common base
figure. This type of financial statement allows for easy analysis between companies or between
time periods of a company.
An aspect of technical analysis that tries to predict the future movement of a stock based on past
data. Trend analysis is based on the idea that what has happened in the past gives traders an idea
of
what
will
happen
in
the
future.
There are three main types of trends: short-, intermediate- and long-term.
Quantitative analysis of information contained in a companys financial statements. Ratio
analysis is based on line items in financial statements like the balance sheet, income statement
and cash flow statement; the ratios of one item or a combination of items - to another item or
combination are then calculated. Ratio analysis is used to evaluate various aspects of a
companys operating and financial performance such as its efficiency, liquidity, profitability and
solvency. The trend of these ratios over time is studied to check whether they are improving or
deteriorating. Ratios are also compared across different companies in the same sector to see how
they stack up, and to get an idea of comparative valuations. Ratio analysis is a cornerstone of
fundamental analysis

Module 5
1. State the objectives of IFRS
The International Financial Reporting Standards Foundation, or IFRS Foundation, is a nonprofit
accounting organization. Its main objectives include the development and promotion of the
International Financial Reporting Standards (IFRSs) through the International Accounting
Standards Board (IASB), which it oversees.[1][3]
The foundation was formerly named the International Accounting Standards Committee (IASC)
Foundation until a renaming on 1 July 2010, and as of 2012 is governed by a board of 22 trustees
The IFRS Foundation sets out the IFRSs and their interpretations, which include the following:

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the International Financial Reporting Standards (IFRSs);

the International Accounting Standards (IASs);
the International Financial Reporting Standards Interpretations (IFRICs); and
the Standing Interpretation Committee interpretations (SICs).

Of these, the IASs and SICs are previously-developed standards and interpretations that have
been adopted by the IASB and IFRS Interpretations Committee respectively.[5] The IFRSs are
developed and published by the IASB, the 15-member standard-setting body of the IFRS
Foundation, while the IFRICs are provided by the IFRS Interpretations Committee.[1]
Via the IASB, the IFRS Foundation also sets out the IFRS for small and medium-sized entities
(SMEs) to better meet the needs of SMEs and relieve the burden imposed on them by the full
IFRSs. At a 2012 panel discussion co-sponsored by the American Institute of Certified Public
Accountants and the Institute of Chartered Accountants of Scotland, Sir David Tweedie said that
the IFRS for SMEs "has been a howling success" and that 70 million businesses are using it
globally, although other panelists expressed doubts about its ability to solve problems in certain
areas
2. Explain the scope and structure of IFRS
This IFRS applies to a transaction or other event that
meets the definition of a business combination. This IFRS does not apply to:
(a) the formation of a joint venture.
(b) the acquisition of an asset or a group of assets that does not constitute a business
In such cases the acquirer shall identify and recognise the individual identifiable assets acquired
(including those assets that meet the definition of, and recognition criteria for,
intangible assets in IAS 38 Intangible Assets ) and liabilities assumed. The cost of the group
shall be allocated to the individual identifiable assets and liabilities on the basis of their relative
fair values at the date of purchase. Such a transaction or event does not give rise to goodwill.
(c) a combination of entities or businesses under common control (paragraphs B1B4 provide
related application guidance).
The International Financial Reporting Standards Foundation, or IFRS Foundation, is a nonprofit
accounting organization. Its main objectives include the development and promotion of the
International Financial Reporting Standards (IFRSs) through the International Accounting
Standards Board (IASB), which it oversees.[1][3]
The foundation was formerly named the International Accounting Standards Committee (IASC)
Foundation until a renaming on 1 July 2010, and as of 2012 is governed by a board of 22 trustees
The IFRS Foundation sets out the IFRSs and their interpretations, which include the following:

the International Financial Reporting Standards (IFRSs);

the International Accounting Standards (IASs);
the International Financial Reporting Standards Interpretations (IFRICs); and
the Standing Interpretation Committee interpretations (SICs).

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Of these, the IASs and SICs are previously-developed standards and interpretations that have
been adopted by the IASB and IFRS Interpretations Committee respectively.[5] The IFRSs are
developed and published by the IASB, the 15-member standard-setting body of the IFRS
Foundation, while the IFRICs are provided by the IFRS Interpretations Committee.[1]
Via the IASB, the IFRS Foundation also sets out the IFRS for small and medium-sized entities
(SMEs) to better meet the needs of SMEs and relieve the burden imposed on them by the full
IFRSs.[6] At a 2012 panel discussion co-sponsored by the American Institute of Certified Public
Accountants and the Institute of Chartered Accountants of Scotland, Sir David Tweedie said that
the IFRS for SMEs "has been a howling success" and that 70 million businesses are using it
globally, although other panelists expressed doubts about its ability to solve problems in certain
areas

Module 6
1. What is human resource accounting?
Human resource accounting is the process of identifying and reporting the investments made in
the Human Resources of an Organisation that are presently not accounted for in the conventional
accounting practices. In simple terms, it is an extension of the Accounting Principles of matching
the costs and revenues and of organising data to communicate relevant information. The
Quantification of the value of Human Resources helps the management to cope up with the
changes in its quantum and quality so that equilibrium can be achieved in between the required
resources and the provi Human Resource Accounting provides useful information to the
management, financial analysts and employees as stated below:
1. Human Resource Accounting helps the management in Employment and utilisation of
Human Resources.
2. It helps in deciding transfers, promotion, training and retrenchment of human resources
3. It provides a basis for the planning of physical assets vis-a-vis human resources
4. It helps in evaluating the expenditure incurred for imparting further education and
training of employees in terms of the benefits derived by the firm.

2. List out the areas covered in forensic accounting

Forensic accounting, forensic accountancy or financial forensics is the specialty practice area of
accounting that describes engagements that result from actual or anticipated disputes or
litigation. "Forensic" means "suitable for use in a court of law", and it is to that standard and
potential outcome that forensic accountants generally have to work. Forensic accountants, also
referred to as forensic auditors or investigative auditors, often have to give expert evidence at the
eventual trial.[1] All of the larger accounting firms, as well as many medium-sized and boutique
firms, as well as various Police and Government agencies have specialist forensic accounting
departments. Within these groups, there may be further sub-specializations: some forensic
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accountants may, for example, just specialize in insurance claims, personal injury claims, fraud,
construction,[2] or royalty audits.[3]
Financial forensic engagements may fall into several categories. For example:

Economic damages calculations, whether suffered through tort or breach of contract;

Post-acquisition disputes such as earnouts or breaches of warranties;
Bankruptcy, insolvency, and reorganization;
Securities fraud;
Business valuation; and
Computer forensics/e-discovery.

3. What is MAOCARO?
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.
4. Briefly explain the pros and cons of HRA
Human resource accounting is the process of identifying and reporting the investments made in
the Human Resources of an Organisation that are presently not accounted for in the conventional
accounting practices. In simple terms, it is an extension of the Accounting Principles of matching
the costs and revenues and of organising data to communicate relevant information. The
Quantification of the value of Human Resources helps the management to cope up with the
changes in its quantum and quality so that equilibrium can be achieved in between the required
resources and the provi Human Resource Accounting provides useful information to the
management, financial analysts and employees as stated below:
1. Human Resource Accounting helps the management in Employment and utilisation of
Human Resources.
2. It helps in deciding transfers, promotion, training and retrenchment of human resources
3. It provides a basis for the planning of physical assets vis-a-vis human resources
4. It helps in evaluating the expenditure incurred for imparting further education and
training of employees in terms of the benefits derived by the firm.
5. It helps to identify the causes of high labour turnover at various levels and taking
preventive measures to contain it.
6. It helps in locating the real cause for low return on investment, like improper or underutilisation of physical assets or human resources or both
7. It helps in understanding and assessing the inner strength of an organisation and helps the
management to steer the company well through the most averse and unfavourable
circumstances.

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8. It provides valuable information for persons interested in making long term investments
in the firm.
9. It helps the employees in improving their performance and bargaining power. It makes
each employee understand his contribution towards the betterment of the firm vis-a-vis
the expenditure incurred by the firm on him

Module 7
1. What are the deductions under Sec 80C
Section 80C replaced the existing Section 88 with more or less the same investment mix
available in Section 88. The new section 80C has become effective w.e.f. 1st April, 2006. Even
the section 80CCC on pension scheme contributions was merged with the above 80C. However,
this new section has allowed a major change in the method of providing the tax benefit. Section
80C of the Income Tax Act allows certain investments and expenditure to be tax-exempt. One
must plan investments well and spread it out across the various instruments specified under this
section to avail maximum tax benefit. Unlike Section 88, there are no sub-limits and is
irrespective of how much you earn and under which tax bracket you fall.
What is allowance? explain the different types of allowances
2. What is allowance? explain the different types of allowances
An allowance is an amount of money given or allotted usually at regular intervals for a specific
purpose. In the context of children, parents may provide an allowance (British English: pocket
money) to their child for their miscellaneous personal spending. In the construction industry it
may be an amount allocated to a specific item of work as part of an overall contract.
The person providing the allowance is usually trying to control how or when money is spent by
the recipient so that it meets the aims of the person providing the money. For example an
allowance by a parent might be motivated to teach the child money management and may be
unconditional or be tied to completion of chores or achievement of specific grades.[1]
The person making the allowance usually specifies the purpose and may put controls in place to
make sure that the money is spent for that purpose only. For example a company employee may
be given an allowance or per diem to provide for meals and travel when working away from
home and may then be required to provide receipts as proof. Or they are provided with specific
non-money tokens or vouchers that can be used only for a specific purpose such as a meal
voucher.

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