Friday, September 22, 2017

Introduction to Management Accounting

Unit – 1: Introduction to Management Accounting
Management Accounting: Meaning and Definitions:
The term management accounting refers to accounting for the management. Management accounting provides necessary information to assist the management in the creation of policy and in the day-to-day operations. It enables the management to discharge all its functions i.e. planning, organization, staffing, direction and control efficiently with the help of accounting information.
In the words of R.N. Anthony “Management accounting is concerned with accounting information that is useful to management”.
Anglo American Council of Productivity defines management accounting as “Management accounting is the presentation of accounting information is such a way as to assist management in the creation of policy and in the day-to-day operations of an undertaking”.
According to T.G. Rose “Management accounting is the adaptation and analysis of accounting information, and its diagnosis and explanation in such a way as to assist management”.
From the above explanations, it is clear that management accounting is that form of accounting which enables a business to be conducted more efficiently.
Characteristics of Management Accounting
Characteristics of management accounting are noted below:
1)      Helps in decision making: It helps management in decision making. The information provided through management accounting is only for internal use of management and it not distributed to third parties.

Funds Flow and Cash Flow Statement

Unit – 2: Funds Flow and Cash Flow Statement
Meaning of funds flow statement:
The financial statement of the business indicates assets, liabilities and capital on a particular date and also the profit or loss during a period. But it is possible that there is enough profit in the business and the financial position is also good and still there may be deficiency of cash or of working capital in business. Financial statements are not helpful in analysing such situation. Therefore, a statement of the sources and applications of funds is prepared which indicates the utilisation of working capital during an accounting period. This statement is called Funds Flow statement.
In popular sense the term ‘fund’ is used to denote excess of current assets over current liabilities.
According to R.N. Anthony, “Fund Flow is a statement prepared to indicate the increase in cash resources and the utilization of such resources of a business during the accounting period.”
According to Smith Brown, “Fund Flow is prepared in summary form to indicate changes occurring in items of financial condition between two different balance sheet dates.”
From the above discussion, it is clear that the fund flow statement is statement summarising the significant financial change which have occurred between the beginning and the end of a company’s accounting period.
Meaning of Flow of Funds

Marginal Costing and Absorption Costing

Unit – 3: Marginal Costing and Absorption Costing
Meaning of Marginal Cost and Marginal Costing
Marginal Cost: The term Marginal cost means the additional cost incurred for producing an additional unit of output. It is the addition made to total cost when the output is increased by one unit. Marginal cost of nth unit = Total cost of nth unit- total cost of n-1 unit. E.g. When 100 units are produced, the total cost is Rs. 5000.When the output is increased by one unit, i.e, 101 units, total cost is Rs.5040.Then marginal cost of 101th unit is Rs. 40[5040-5000]
Marginal cost is also equal to the total variable cost of production or it is the aggregate of prime cost and variable overheads. The chartered Institute of Management Accountants [CIMA] England defines Marginal as “the amount at any given volume of output by which aggregate costs are changed if the volume of output is increased or decreased by one unit.
Marginal Costing: It is the technique of costing in which only marginal costs or variable are charged to output or production. The cost of the output includes only variable costs .Fixed costs are not charged to output. These are regarded as ‘Period Costs’. These are incurred for a period. Therefore, these fixed costs are directly transferred to Costing Profit and Loss Account.
According to CIMA, marginal costing is “the ascertainment, by differentiating between fixed and variable costs, of marginal costs and of the effect on profit of changes in volume or type of output. Under marginal costing, it is assumed that all costs can be classified into fixed and variable costs. Fixed costs remain constant irrespective of the volume of output. Variable costs change in direct proportion with the volume of output. The variable or marginal cost per unit remains constant at all levels of output.”

Budgets and Budgetary Control

Unit – 4: Budget and Budgetary Control
Meaning and Definition of Budget, Budgeting and Budgetary Control:
Budget: A budget is the monetary and / or quantitative expression of business plans and policies to be pursued in the future period of time. Budgeting is preparing budgets and other procedures for planning, coordination and control or business enterprises.
I.C.M.A. defines a budget as “A financial and / or quantitative statement, prepared prior to a defined period of time, of the policy to be pursued during that period for the purpose of attaining a given objective”.
Budgeting refers to the process of preparing the budgets. It involves a detailed study of business environment clearly grasping the management objectives, the available resources of the enterprise and capacity of the enterprise.
Budgeting is defined by J.Batty as under: “The entire process of preparing the budgets is known as budgeting”.
Thus budgeting is a process of making the budget plans. Preparation of budgets or budgeting is a planning function and their implementation is a control function. ‘Budgetary control’ starts with budgeting and ends with control.
Budgetary control is the process of preparation of budgets for various activities and comparing the budgeted figures for arriving at deviations if any, which are to be eliminated in future. Thus budget is a means and budgetary control is the end result. Budgetary control is a continuous process which helps in planning and coordination. It also provides a method of control.

Introduction to Public Finance

Unit – 1: Introduction to Public Finance
Meaning and Definition of Public Finance
Public finance is a study of income and expenditure or receipt and payment of government. It deals the income raised through revenue and expenditure spend on the activities of the community and the terms ‘finance’ is money resource i.e. coins. But public is collected name for individual within an administrative territory and finance. On the other hand, it refers to income and expenditure. Thus public finance in this manner can be said the science of the income and expenditure of the government.
Different economists have defined public finance differently. Some of the definitions are given below. 
According to prof. Dalton “public finance is one of those subjects that lie on the border lie between economics and politics. It is concerned with income and expenditure of public authorities and with the mutual adjustment of one another. The principal of public finance are the general principles, which may be laid down with regard to these matters.
According to Adam Smith “public finance is an investigation into the nature and principles of the state revenue and expenditure”
To sum up, public finance is the subject, which studies the income and expenditure of the government. In simpler manner, public finance embodies the study of collection of revenue and expenditure in the public interest for the welfare of the country
Nature of Public Finance
Nature of Public finance implies whether it is a science or art or both.

Financial Administration in India

Unit – 2: Financial Administration in India
Meaning of Financial Administration
In simple words, financial refers to such a system or method by which one can analyse the financial working of the public authority. Thus the focuses on the procedure which ensure the lawful use of public funds. However the concept has been differently defined as under:
Prof .M.S Kenderic, “The financial administration refers to the financial measurement of govt. including the preparation of budget method of administering the various revenue resources the custody of the public fund, procedures in expending money, keeping the financial records and the like. These functions are important to the effective conduct of operation of public finance”
Prof. Dimock, “Financial administration consists of a series of steps whereby funds and made available certain official under procedures which will ensure their lawful and efficient use. The main ingredients are budgeting, accounting, auditing and purchase and supply.”
From these definitions one can easily find four ingredients (Methods/Process) of financial administration:
1)      Budget. The term budget has been derived from the French word “Bougette” which means a leather bag or a wallet. The chancellor of Exchequer in England used to carry his papers in the bag to House of Commons. Prof. Willoughby defined, “Budget-it should be at once a document through which the Chief Executive comes before the fund-raising and fund grading authority and makes full report regarding the manner and which he or his subordination have administered affairs during the last completed year ; in which he or exhibits the present conditions of public treasury and one the basis of such information sets forth his programme of for the year to come and the manner in which the purposes that such work should be financed.” In the word of Prof. Dimock, “Budget is a balanced estimate of expenditure and receipts for a given period of time. In the hands of the administration, the budget is a record of part performance a method of current control and a projection of future planes.”

Public Revenue

Unit – 3: Public Revenue
MEANING OF PUBLIC REVENUE AND ITS SOURCES
A government needs income for the performance of a variety of functions and meeting its expenditure. Thus, the income of the government through all sources like taxes, borrowings, fees, and donations etc. is called public revenue or public income.
However, Prof. Dalton has defined the term in two senses – broader and narrow sense. In broad sense, it includes all the income and receipts, irrespective of their sources and nature, which the government happens to obtain during any period of time. In the narrow sense, it includes only those sources of income of the government which are described as revenue resources. In broader view of the concept is that is includes all loans which the government raises under the term ‘public revenue’ or public income. The distinction in both can also be explained as the term ‘public revenue’ used in public finance. It includes only those sources of government income which are not subject to repayment. In a broad sense, it means all receipts of the government irrespective of the fact whether they are subject to repayment or not.
In a modern welfare state, public revenue is of two types:
(a)    Tax revenue and
(b)   Non-tax revenue.
(a) Tax Revenue: A fund raised through the various taxes is referred to as tax revenue. Taxes are compulsory contributions imposed by the government on its citizens to meet its general expenses incurred for the common good, without any corresponding benefits to the tax payer. Seligman defines a tax thus: “A tax is a compulsory contribution from a person to the government to defray the expenses incurred in the common interest of all, without reference to specific benefits conferred.
Examples of Tax Revenue 

Public Expenditure

Unit – 4: Public Expenditure
 Meaning of Public Expenditure
Public Expenditure refers to Government Expenditure. It is incurred by Central and State Governments. The Public Expenditure is incurred on various activities for the welfare of the people and also for the economic development, especially in developing countries. In other words The Expenditure incurred by Public authorities like Central, State and local governments to satisfy the collective social wants of the people is known as public expenditure.
Objectives of Public Expenditure:
The major objectives of public expenditure are
a)      Administration of law and order and justice.
b)      Maintenance of police force.
c)       Maintenance of army and provision for defence goods.
d)      Maintenance of diplomats in foreign countries.      
e)      Public Administration.
f)       Servicing of public debt.
g)      Development of industries.
h)      Development of transport and communication.
i)        Provision for public health.
j)        Creation of social goods.
Importance of Public Expenditure

Thursday, September 21, 2017

Investments Accounts

Unit – 4: Investment Accounts
Meaning of Investment and its types
The term ‘Investment’ refers to funds invested in various securities consisting of government and semi-government loans, debentures of local authorities such as port trusts, municipal corporations and the like and debentures and shares of companies. Accounting Standard 13 issued by the Institute of Chartered Accountants of India defines investment as, “Investments are assets held by an enterprise for earning income by way of dividends, interests and rentals, for capital appreciation, or for other benefits to the investing enterprise. Assets held as stock-in-trade are non-investments”. Securities may be fixed interest securities and variable yield securities. Fixed interest securities are those securities which carry a fixed rate of interest while the securities (such as shares of companies) on which dividend may fluctuate from year to year are called variable yield securities.
Investments may be a fixed asset or current asset. If the investments are held permanently for a long period time, they will be regarded as fixed assets and known as ‘trade investments’. But where the object of the business is to buy and sell securities or these are held as a temporary investment of surplus liquid resources for not more than one year, then they will be regarded as current assets or marketable securities.
(a) As Trade Investments: The investments which are made permanently for a regular income outside the business is known as Trade Investment. These are treated as fixed assets. That is why if this type of investments are sold at a profit, profit on such sale of investment is transferred to Capital Reserve Account and not to Profit and Loss Account.

Financial Statements of General Insurance Companies

Unit – 3: Financial Statements of General Insurance Companies
 Meaning of General Insurance
Insurance contracts that do not come under the ambit of life insurance are called general insurance. The different forms of general insurance are fire, marine, motor, accident and other miscellaneous non-life insurance. The tangible assets are susceptible to damages and a need to protect the economic value of the assets is needed. For this purpose, general insurance products are bought as they provide protection against unforeseeable contingencies like damage and loss of the asset. Like life insurance, general insurance products come at a price in the form of premium. 
Features of General Insurance Companies:
a)      General Insurance policy is a contract of indemnity in which the insurer agrees to reimburse only the actual loss suffered subject to the average clause.
b)      General Insurance contract is for a short period usually a year.
c)       The subject matter is any physical property, assets, ship or cargo etc.
d)      General insurance has only the element of protection and not the element of investment.
e)      Insurable interest on the subject matter must be present both at the time of effecting policy as well as when the claim falls due.
f)       General insurance is a contract of indemnity. The insured can claim only the actual amount of loss from the insurer.
g)      General insurance does not have any surrender value or paid up value.

Accounts of Life Insurance Companies

Unit – 2: Accounts of Life Insurance Companies
Concept of Life fund of an Insurance Company
Life Fund, also known as Life Assurance Fund is concerned with Life Insurance (Assurance) business. It is an item that appears on the liability side of the company's Balance Sheet. For insurance business, claim is an expenditure while premium is an income. As we all know, the difference between income (premium received) and expenditure (claims paid) should be the profit. In case of life insurance business this approach would pose a problem.
The income premium, is collected periodically (monthly, quarterly, annually) on policies that mature over a long period of time. The expenditure claim, has to be paid either on the maturity of the policy or on the death of the policy holder. Claim as an expenditure is definite while premium as an income is uncertain. The expected amount of premium on a policy will be received only if the policy holder is alive up to the maturity of the policy.
Therefore life insurance companies treat the difference between income and expenditure as a surplus and not profits. This surplus from the revenue account is transferred to the Life Fund, where it gets accumulated. Life fund is shown in schedule – 6 of the balance sheet under the head “Reserves and Surplus”.
Net Liability is useful to compute the profits of a life insurance business. It is the estimated liability on all the policies that are in force. The Net Liability is valued by an actuary. Hence it is called Net Liability as per actuarial valuation. The difference between Life Fund and Net Liability is the profits. Once in every two/three year’s life insurance companies calculate profits and distribute it among policy holders and shareholders in the ratio of 19:1 or in any other suitable ratio.
Determination of Profit in Life Insurance Business by preparing valuation balance sheet

Accounts of Banking Companies

Unit – 1: Accounts of Banking Companies
Meaning of Banking and Banking Company
As per Section 5(b) of the Banking Regulation Act, 1949, "banking" means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise.
As per Section 5(d) of the Banking Regulation Act, 1949, "company" means any company as defined in Section 3 of the Companies Act, 1956 and includes a foreign company within the meaning of Section 591 of that Act.
As per Section 5(c) of the Banking Regulation Act, 1949 a "Banking Company" means any company which transacts the business of banking in India.
Business in which a banking company may engage or features of a Banking Company
Section 6 of the Banking Regulation Act, 1949 specifies the forms of business in which a banking company may engage. These are:
1)      Borrowing, raising or taking up of money, lending or advancing of money; handling in all manners Bills of exchange/hundies/promissory notes.
2)      Acting as agents for any government or local authority or any other person,
3)      Managing issues of shares, stock, debentures etc. including underwriting guaranteeing,
4)      Carrying on and transacting every kind of guarantee and indemnity business.
5)      Managing, selling and realizing property which may come into the possession of the banking company in satisfaction of its claims.

Computer Networks and Internet

Unit – 4: Computer Network and Internet
Computer Network
A collection of computers and terminal devices connected together by a communication system is called a computer network. This collection of computers may include large-scale computers, medium-scale computers mini-computers and microcomputers. The set of terminal devices may include intelligent terminals, dumb terminals, work stations and communication hardware. The interweaving of computing and communication had led to information networks of great complexity and utility. Transmission lines can be used to connect a computer to another computer or a computer terminal to a computer. Networks have following prominent features such as:
(i) Multiple connection: Connecting a computer or terminal to any of a number of other computers at various locations.
(ii) Sharing: Permitting several terminals or computers to use the same transmission line alternatively.
(iii) Multiplexing: Permitting several terminals or computers to translate data over the same transmission line simultaneously.
(iv) Message Packing: Interleaving data into the line so that idle periods of one transmitter can be used to send data from another.
Advantages of Computer Network:
  1. A network provides the means to exchange data frequently on a daily basis.
  2. Network permits sharing of organization’s resources. For e.g. if there is too much work load at one site, the network allows the work to be transferred to another computer in the network.
  3. In case one computer fail, the network allows another computer in the network to take over the work load.

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