A~\ urn's Students Advisor___::_:_

~ "L::..~...:.:=:.::..:.::....:..:.:..:..:=: B 3 __________
Management Accounun
---!

~\nnagement Accounting Meaning, Scope, Importance al)d

LiP1itations - 11anagement
'-'
Accounting vs. Cost Accounting. Management
Accounting vs. Financial Accounting.
SECTION - A
Define Mauagement A.ccomzting. (Or) What is Management Accounting ?
[April 2015, 2014, 2013, 2012, 2010, 2008J
:l \Ianagement Accounting : The Chartered Institute of Management
Accountants (CIMA). London, defines Management Accounting as follows,
··The application of professional knowledge and skill in the preparation of
accounting information in such a way as to assist management in the formation
of policies and in the planning and control of the operations of the undertaking".
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2. State any two tools of Management Accounting ? {April 2016,2013)

Two Tools of ~Ianagement Accounting :
(i) Financial Polin and Accounting : Source of Funds for every
busi_ness conce_rn ~s planned in Management Accounting. The
Capital Budgetmg 1~ a tool for financial planning.
(ii) Budgetarv Control: Budgets are used as a tool for planning and control.
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3. Lzst the characteristics of Management A ccoun t.mg ?•
,. . . .
{ IDU:iOO'bWTm~ a \ 6 i l i ! T ~ fijA'rAlUI miT!lJTQ) mirm ?)
( I) Projections and Forecast ( . . .
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(2) Provides Information (- . . . <Y>•5 4)
-Wa.15QT QJ~~~a,) '
13) Achieving Objectives· ( ,,a.
, ~J.!.1"5C«.1uiraA>ar .!)f•L~)
(4) Techniques and Concepts {LLurfus.liJ ID!DGJUI 5al)'afl.ser)
(5) Helps to Management (C1Da.icuilrai1Da~ L~~J.
ayura 's Students Advisor 84 Management Accounting

lVhat are tlze uses of ~la11agcme11t Accou11ti11g ? (Or)

State tire objectfres of ~fa11agc111"11t Acco1111ti11g ·!
Advant~ge~ of l\lanai:en1cnt Accountini:: ·r he hasic object of Management
Accounting 1s to assist the management in performing its functions effectively.
The Management Accounting is used in performing these functions as foJlows
(I) Planning \ (2) Controlling (3) Organising
( 4) Motivating (5) Communicating.
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State the limitations of Management Accounting ?

Limitation of Management Accountin2 :
Managen1ent Accounting suffers from certain limitations are as follows :
(1) Limitations of Basic Records : Management Accounting obtains
its information from financial accounting, cost accounting and other
records. The soundness of the management accounting depends
upon the strength and weakness of these basic records. Therefore,
their limitations are also the limitations of management accounting.
(2) Convincing Management : Decision taken by the management
accountant are not executed freely. He has to convince people at
all levels of management. Therefore the Management Accountant
should act as salesman in selling his ideas.
Who is a Management Accou-ntmzt (or) Financial controller ?
The officer who is entrusted with management accounting function
in an organisation is known as Management Accountant. He caters to
the information needs of different management levels. He is known by
different names in different organisations, i.e., controller, chief
accountant, financial adviser, financial controller etc.
Explain Mallagement by Exception (MBE).
Management by Exception : Management by Exception means focus
attention of management on significant deviations and not with all
kinds of routine matters. This principle of management by e="'ception
is followed when presenting information to management.
yura's ·Students Advisor · B.18 Management Accounting
T - II
alysis and Interpretation or' Financ.ial Statement - Nature',
jectives, Tools - Methods - Comparative Statements, Common Size
atement and Tr~nd Analysis.
\
•l
SECTION - .A'
What is Financial State;,,ents·? (Or) Purpose. of Financial Statements?
' '

[April 2015, 2(!_13, 2012]

Meanin2 of the term "Financial Statements" ·: A financial'statements
is an organised collectio~ of data by logically with consistent accounting
' '
procedures. Its purpose is to convey the financial aspe(?tS of a ·business. It
may show a position at a particular time lik.e a balance sheet or may reveal
the activities over a giv~n period of tim~. 'J;hey ·are ' : . 1 ,
(i) The Income Statement . , · ·(i1) The Balance Sheet.
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(i) rurr6lJ Qa=6U6lJ ~1rnM;rne; (ii) @@Ll4 ~m6\l ®¢1D4•
'

What are different types of "Financial , of Statement" ?

Types of Financial Statement
( 1) The Income Statement
(2) Balance Sheet
(3) Comparative Statement
( 4) Trend Analysis
(5) Common 'Size Statement
(6) Fund Flow Statement
(i) A Statement of retaired earnings
(ii) A Statement of changes in working capital
(7) Cash Flow
(8) Ratio Analysis
(9) Cost - Volume - Profit Analysis
(10) Budgetary Control & Variance Analysis.
 Management Account1
B 19
Mayura's Students A dvisor
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3. Define "Financial Statements Analysis" ?

Defination of "Financial Statements Analysis" : In the words
Myers. "Financial statement analysis is largely a siudy of relation
among the various financial factors in a busines's as disclosed by
single set of statements [,lnd . st11;dy of. the trends of these factors
shown in a series of statements."
What are the various types of analysis of Financial Sfatement ?
The various types of analysis of Financial Statement : The follo ·
are the various types of analysis of the financiai statements :
(i) External Analysis - · Analysis by creditors, shareholders banks
financial institutions.
(ii) Internal Analysis - Analysis by the management.
(iii) Horizontal Analysis - Comparative financial statements, AICPA
observed that "In any one year it is ordinarily desirable that
balance sheet, the Income statement and surplus statements be giv
for one or more preceding years as well as for the current year."
(iv) Vertical Analysis - Common size Balance Sheet Ratio is a stu
of a single statement for the relationship of the components
the total by converting each amount in the statement to a percen
of total amount of the group.
ayura 's Students Advisor 820 Management Accounting

(v) Trend Ratios - These are computed in relation to a base year

which must be a normal year. These are index numbers of changes
in financial data as compared to a base year data.
(vi) Funds flow analysis and cash fl~w analysis.
(vii) Break - even Analysis.
(viii) Ratio Analysis - B_a lance Sheet Ratios~ Profit and Loss account
ratios or operating ratios and combined ratios i.e., Ratio of the
item in P & L account and another item jn·· Balance Sheet.
Distinguish between Analysis and Interpre_tation~ [April 20161
Distinguish between Analysis and Int·e rpretation- :
Analysis : Financial ~tatement analysis · is a stud; _o f relationship
among the various financial factors in a business as disclosed by a
statement. Thus financial analysis is a process of selecting, relating and
evaluating the financial factors in business. a
Interpretation : Financial statement interpretation means "putting the
meaning of a statement into simple terms for ·the beriefit of a .persons".
Thus the following two proced·ure are involved to interpretate , the
financial statement.
(i) First, methodical classifi_cation of the data given . in .the financial
statement by systematic and scientific way.
(ii) Secondly, comparison of the various inter connected figures with each
other by different tool of finandal analysis like comm~n size statement, .
Ratio analysis, Fund Flow Statement, _C ash Flow Statement etc.
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(i) ( 0111p11ral i vc financial statement tt,

1

(11) (;0111111011 - size statements,

(tii) T,end perceut-ages,
(fr) Ratio analysis,
(v) Statemen t of changes m the W<Hking cnpJlrtL
( vi) Cash flow statements, and
( vii) Fund flow statements (FFS).
7. What are the steps involved in analysis of Pillancial Statement ?
Ste~ involved in the Analysis :
(i) Compilation of financial data,
(ii) Study of data,
(iii) Systematic classification of data,
(iv) Scientific arrangement of classified groups of data,
(v) Establishing relationship with related data for further companson,
Supplementing with appropriate c.omments,
ii) Analysis,
"I) Interpretation of the analysis. I

are the objectives of Financial Statement Analysis ? [April 2016)

.
ttves of Financial Anal sis ••
To determine the financial soundness of the firm. i.e .• liquidity of
e firm.
judge the solvency of the firm by working out leverage rntios.
assess the profitability of the firm by the present shareholders
prospective investors.
ement can measure the operational efficiency of the firm by•
s of operating ratio and turnover ratios.
provides basis n?t only for intra - firm comparison hut nlHt' for
;inter_ firm companson.
Comparison ~ith base. year financial statements will help rhe
management 1n controlling the affairs of the firm .
ayu ra •s Stu den ts Ad vis or B2 2 M11r11u111ll1ont Acr ,ou ntln g

fAp ril 201 3, 20J 2, 2(J(J'JJ

lVlu ,t is Comparlltiv<' ..,\'lllfr me ut '!
uti vc Stat crm,;ntt,, the fi~urc s for
Com1mrntivc S_tiatemcuf : Under Compur pan sior1. An1/
sjdc le, f;~crn tutc com
t~vo 01: mo re periods urc pJuccd side by
com par all vc f,,rm . f ~ Jt nr,rmalJy,
hnn ncr nl stat em ent cun be pre pured iu a
1

nnc c and Inc om e Stu tcn wut an; prcpt1rcd in a com p;;irntive form.
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fApriJ 20141
lVh at is Co mm ou Siz e Sta tem ellt ?
stat em ent s pr~ sen t abs olu te
Comn1on Siz e Sta tem ent : Fin anc ial
res cou ld be mis lea din g. For
figu res . A com par iso n of abs olu te figu
res mig ht hav e gon e up but
exa mp le, cos t of sale s in abs olu te figu
e com e dow n. Hen ce for a
ns a per cen tag e of sale s it mig ht hav
rep ort ed are con ver ted into
bet ter und ers tan din g, the figu res
In the inc om e stat em ent, the
per cen tag es to som e com mo n bas e.
all figu res are exp res sed as
sal es figu re is ass um ed to be 100 and
the bal anc e she et the tota l of
a per cen tag e of sale s. Sim ilar ly in
all the figu res are exp res sed
ass ets or liab ilit ies is tak en as 100 and
em ent s so pre par ed are cal led
as a per cen tag e of this tota l. The stat
use ful to a fina nci al ana lys t
co111mon siz e sta tem ent s and the y are
a bet ter und ers tan din g .o f bal anc e she et and inc om e stat em ent .
for
{April 2015, 2013}
Write a llot e 011, "Tr elld An aly sis" ?
imp orta nt for fore cas ting and
Tre nd An aly sis : Trend ana lysi s is
ing . Tre nd ana lys is disc lose s the cha nge s in fina nci al dat a as
bud get
this met hod , t~e ear li~s t yea r of
com par ed to a bas e yea r data . Un der
as bas e yea r and eve ry item in
the fina nci al stat em ent ma y be tak en
l dat a of suc ces sive yea rs are
bas e yea r is stat ed as 100. The fina ncia
s and con ver ted as '·pe rce nta ge" .
tak en for the pur pos e of tren d ana lysi
cifi c per iod .
It. is use ful for com par ism bet wee n spe
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 Mana g ement Acco
AfaYUra's Students Advisor • ?

[cu fating
r,en d Analysis .
12. ff'hat is Procedure for ca d • and one
f'.rocedure for Ca!culatJ'no• Tren_ vears . .
ts aken up
1
.
(i) fhe intormat1011 . . several
tor . as a base ,.year.
. taken 00".
- . .vear. 15
£enerJlh· the tir::;t e taken as 1
(l·1·)T.. h - . . 1· the base vear ar l ted on the
e t1gures o · e calcu a h ther upw
(iii) Trend ratio for ot1ier •\ ears ar d of figur es ' w e
year. This '\·1·11 she\\ the tren
down\,-ard.
13. • • ?
Trhat you mean by Inter -firm (or) Intra • fl ,,,1 Coniparzszo11
[Nov..

Compwi .•
. . ·. Ra(1o of .a firm
an be compared
Inter - firm Comparis10n II dc Inter .- Firm
.
~ . . . th . d try is ca e .
ratios ot srm,Jar firms m e m us the company IS ope
Such a comparision will indicate how weII
reiariveh- to its comparision.
• ?
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14. What are the advantages of Inter- fim, (or) Intra - firm
~~'1Ji1TciJa-;~6JT ~Ut5l@u, C:urr~ 6T.(!)U@u, ,(!i6al'6allD~6Tf ?

The Advantages of Inter - firm Comparisiorr :

\iJ It provides comparative data to the business or departmen
assess the level of performance. It provides the busine
and produ
depanments with information regarding profitability
of sim1·1 ar type and size.
.
(ii) It identifies the particular areas · h
management need attention. in t e business
(iii) It provides uniform information to llla
15.
What are the disadvalltages of Inter· firm ( nagement. )
1'lllJlwarw,...,.,. 9ULIJ(/i1tii Cu,~ IT/ilu(jjlu, ~"'""' ? or 1lltra -Jinn
The disadvanta es of Inter - firm Co!n ..

(i) ar1s1on •.
The success o~ inter - firm or intra_ firm
good co-operat10n between member fi cornParision depends
. .
of non - co · operallon, It is im - irrns
. or d epartments. In
comparison. Possible to have
 Students Advisor 824 Management Accounting
( ii) I n case of ·inter - firm comparison, usually information supplied by
member firms will be kept confidential. If there is reluctance on
the part of son1e firms to part with information of a confidential
nature, this creates problems for the association in compiling data.
What are the requisite fo; Inter-firm (or) Intra -firm, Comparision?
Lffl LDJDW,Ul Qwlilfl ~W,Wffl 9uul@,2j6Ulffl (.YIAT C:,2j61D'1.1Bi6TI" ?
Requisites for Inter - Firm and Intra Firm Comparision :
The following are requirement for Inter firm and Intra firm Comparision
(a) The necessity for inter - firm comparison has to be analysed.
(b) Comparability of firms may he attained on the basis of capital invested,
size of business~ locatiori•of business, methods, age etc.
'
( c) The nature and extent of informatioQ to be gathered from the member
uni ts has to be decided.
(d) Information regarding (i) · material control and material
consumption (ii) Cost structure (iii) Labour.efficiency (iv) Plant
effi~iency (v) Production n1ethods· and te_c hriical (vi) Liquidity
of firm etc n1ay be collected. . .
( e) Accounting Ratio are used ·to prese~t the information in a suitable form
for con1parison.
From the following assets side of the Balance Sheet of Sundaram
Computers Limited for the years ·ended ·31st December 1992 and
1993, prepare a common size Balance Sheet for 1992 and 1993 :

Rupees in lacs. /
. . . 1992 1993
..,. Rs. , Rs.
Assets
100 140
Cash .
200 300
Debtors
200 300
Stock
400 370
Land and Buildings
300 270
Plant
100 ·140
Furniture
: 1,300 l,520
 Management Ac

Mayur 's Students Advisor

Answy: ters Ltd. 3

daram coinpu 992 and 199
Sun et or I
.
Common size Balance

.)

1992
Particulars %
%_--r-

ASSETS
CURRENT ASSETS
9.21 %
Cash 7.69%
15.39% 19.74%
Debtors
l 5.39% 19.74%
Stock
Total of Current Assets 38.47% 48.69%

FIXED ASSETS
Land and Building 30.77% 24.34% -
Plant 23.07% 17.76%
Furniture 7.69% 9.21%
I .
Total of Fixe.d Assets 61.53% 51.3 1%
Total Assets 100.00% 100.00%
INote f Under c.ommQn size statement, total asset will be taken as 100. Based
percentage, each item will be calculated as follows
100
Cash =
Total Asset Value x Cash Amount
100
1992 = - - X 100 = 7.69%
1,300
100
= - - X 140 = 921%
1993
I ,520 .. =
100
Debtors =
Total Asset Value x Debtors
100
1992 = 1,300
X 200 = 15.38%
=-
100
1993 = - - X 300 = i9.74% and
1.520 44 so on
·····
!!Jay ura's Stud ents Adv isor

JJNIT - III
845 Man agem ent Acco untin g
--
- Clas sific ation of
Rati o Anal ysis - Interpretation, Benefits and Limitatio ns
and Leverage.
Ratio - Liquidity, Profitability, Turnover, Capital Struc ture

SEC TION - A

Wha t is mea nt by Rati o A naly sis ? [Apr il 2013 , Nov. 2012)

1.
two accounting
Mea ning of Rati o Anal ysis : The relat ions hip betw een
o anal ysis fs
· figur es is know s as acco untin g ratio anal ysis. Rati
cial cond ition s
useful to man agem ent to know the chan ges in the finan
of the busi ness .
ml&! ~ LI®LIUmu~ 6TATJDrr6il mirAT ?
l tn$i)Q!Drr® 6T61RITmiJ5~ui
rnluJfn ~ww - rnl6lTciB>w : rn1cil~ ~w~ 6Tmu@ 9 rr 6T~~ c$@U
6lfT~~ri r ,!tl~ Jtl6lll 6UQDIDuSlfir
L 6Tr6TT Q~ rrL rrul 6l!) 6lJT rnl6TT ffi@) 6lJ ~ If@ ID. rnlcil~ ~IU~ JtlWJ6l1
tnrrriJ!JJffil8i6l!l6lT Q~rf1JE@ GBirrmru~!i:J® L~~cilJD~. •

State mea ning of Curr ent Rati o ?

itment
of Cur rent Rati o : This ratio show s the firm 's comm
shor t term liabilities. It is expe cted as follo ws
Current Assets
Current Ratio =
Current Liabilities
with in a
t assets mean asset s whic h are conv erted into cash
heve r is
time or normal oper ating cycle of the busi ness · whic
operating
Curr ent Li.abilities are Paya ble with in a year or norm al
etc.,
hich ever is longer. Curr ent Asse ts are Stoc k, Deb tors, Cash
t Liab ilitie s are Cred itors·, Bills Paya ble etc.

J!>LULj rnli$l~w 6T6GTU@ /1iLU4 Qe:rr~~c$~4>@jlD jr,LU4

IICl'lWl)5~lD !LQl"6TT Q~rrLri-4 @!J51uu~IT@)UJ.
. . !JiLULj Qe:,r~~ffi8jffl"
• JbLU4 rnli$l~w =
!JiLu4 QuirJDJu 45m

QITITffiffilD, 6l.Hfili$l, c$LRTrr6Tfl56ir, 6fT4>®, Qu/tnrr/8., (Yl~'61WAT.

a;L6llf'J;C:~rrrr, rurfu1$1 C:1n6brum,ru upmi,' QfF/UJrr/#., (Yl~'6 1wm.
 ura's Students Advisor ·J
B46
What are the Managema
componellts of Current As . , ------.;;:_ · 111 Accounting
C sets and C
omponents of Cnrrent Assets a ~ r urrent Uabl/it/e, ?
Current Assets : . CJJ! ~ :
Stock
Bills Receivables
, Sundry Debtors
Cash in hand
Bank Balance
Advances
Prepaid Expenses
. Short - term Investment.
Current Liabilities :
Sundry Creditors
Bills Payable
Outstanding Expenses
Bank Overdraft
Provision for Bad ·Debts,

What is Current Assets ?

Assets : The term· "Current Asset" includes assets which are
-=..;;:.;;;.::;.,:;-a:.==-==a=.

acquired with a intention to converting them into cash during normal

course of business. It has following components.
Inventories
(a) Stock of Raw Material.
(b) Work in Progress
(c) Finished goods.
Sundry Debtors and Bills Receivable.
Cash and Bank Balances.
Advance given for supply of goods etc.

hat is Current Liabilities ? .. those liabilities which are

t Liabihttes are h t
urrent Liabilities : C urren . course of business within a s_ ~r
tended to be paid in the ordm~:he Current Assets. Current Liability
eriod of normally one year ou:r:ditors, outstanding expenses etc.
eludes bills payable, sundry (Nov. 20131
10 t' ?
hat do you mean by Liquid Ra • Liquid Assets
Ratio js calculated by taking
Ratio : Liquid
d!IJ!!.!!!.!..!:.~=-=--
L i abilities.
, Mayura's Students Advisor 847 Management Acc 011

Liquid Assets
Liquid Ratio =
Current Liabilities
Liquid Assets refer to assets which are shortly converted •
cash. Current Assets except Stock and Prepaid Expen ses
as Liquid Assets.

7. What are Basic group Financial Ratio ? (Or)

What is Solvency Ratio ? [April 2014,
"ru ti;® ml tf,l ~ 1.0" 6T mtD rr6U 6Tmm ?

Solvency Ratio [B;Lm: ~rtffi@W rnl~~wl

(a) Short - term Solvency Ratio :
Current Assets
(i) Current Ratio = Current Liability
Current Assets - Stock - Prepaid Expe
(ii) Liquid Ratio =
Current Liability
.
(b) Long - term Solvency Ratio • .
Long - term Debt
(i) Debt Equity Ratio -
Shareholder Funds
.
Shareholder Funds
(ii) Proprietory Ratio =
Total Tangible Assets

8. What is Operating Ratio ? [April 2014,

Qa=w.uurri:.@ rnltf.l~tb 6T611TtIJITA> fTATffl ?
Operating Ratio [QftJ~(YIA>pl mlal~] .
⇒
Operating Cost (Gi1BW6U(!PA>jD ~a;c$mlA>a))
X 100
Net Sales (Jtlc$1J ~1..161>6l1r)
Operating Cost Cost of Sales + Operating Expenses
[QUUJ6U(Yl6DllIJ ~ Lc$Birul6Dl61)
rul!I)lIJ~ffl ~LB;c$rulA,61) + ~(Yl61D$!) Qc!HUQtc$ffl']
Cost of Sales Sales - Gross Profit
[rul!I)lIJ~ffl ~Le;o;rulm6U ~UA>Qfr - (;am~~]
Mayura's Students Advisor B48 Managem ent Accountin g

9. What is Profitabil ity Ratio ? [April 2013, 2010}

· Profitabil ity Ratio : Profitabili ty ratios measure the Profitabili ty of a

business operations . These ratios may be related to sales or investmen ts
with Profits. For exan1ple :

Gross Profit Ratio [

Gross Profit
Sales
X 100]
Net Profit X I oo]
Net Profit Ratio [ Sales
Net Profit + Interest + Tax ] .
Return on -Investme nt [ Capital Employed ' etc.

@ 6U ITU -='i 6TT~ ml~ ~UJ 6T msn If6\) 6Tffl AT ?

£i}6llrru mli$l~t.h : @6Urru rnl&l~w 6Tmu~ rnlturrumr .[!)L6Ui9-ffimffiffimlm @6Urru~6l!>~ c$6lm'ffic$l@w
(Yl6mp)IU1r(§UJ. @.ffi~ ruli$l~l!llc$61T rulUJrrUITIT~~liiJr @6UITU~m~ rulj!)U6mffi~Lffi ~6U6U~ (Yl~6U@
!LLffl 9uL5lL.@ c$6mffi&lL <:ru6iur@UJ.

~61!)6lJffiffl: :
(1) QLDnji~ 6\J[U m)\$}~t.h
Glwrr~~ 6Urruw
X 100
@ffi IT 6DI J!)U6m rn
(2) !fila;rr rurru ml~,:!il.O
@ffilT 6UITULD
X 100
@ffi IT ml J!)Um rn

(3) QP,:!i©@ ~ I 6lJ@6lJ[lU m)~~Ul

@ffilT 6UITULD + 6lJLi9- + rurfl
X 100
6.ilUJrrumr~~ru uUJmu@LD (Yl~ru

10. How can you calculate Gross Profit Ratio ? [Nov. 2010]
Qwrr~~ £i}6UITU m)~~~61D~ j 6Tru6lJITJP) 5QRJT5~@WITW ?
Calculati on of Gross Profit Ratio :
Gross Profit (Qwrr~~ 6UrruLD)
X 100
⇒
Net Sales (}blffilT mlJDumrn)

Gross Profit Sales - Cost of Sales

[Qwrr~~ 6UITULD ml!!JU6mffi - ml!!)!!)~6UT ~Lffiffi6ill6m6U]

Net Sales Sales - Return

~ffilT mlj!)U61Dffi ml!!JUA>AT - 6ill!!Jumrn ~®LI4]
 Mana geme nt
849
~£} ur.a's Stude nts Advis or

11. How cart you calculate Net Profit Ratio ?

~ 5 V" Q) lf"U rul i$) $1i ~AD~ j 6T ru 611 IfDJJ c$ mT ~5l@6lJITIU ?

Calcul ation of Net Profit Ratio .(@ti[ 6V[W rnl$1p;w q;6J!Wliiffil@p;ti>l :

Net Profit (@o;,r 6UITULD) x 100
Net Sales (@o;,r rnlwurn6DT)
Net Profit = Gross Profit - Opera ting Expen ses + Opera ting
Net Sales = Sales - Return

12. Write down the formu la for Debto rs Turno ver Ratio .
5LATrr'1 fl56rr ~y,fiJ61 rnlcfil~~~JDc$IT6'0T @,~ti,lrr~${,16m6lfr 6T@~Bi -·

Debtor s Turno ver ·R atio fa;unrrr6Tfl Bi!PUJtfl mlcil~wl :

⇒ Credit Sales (or) Sales (ffiL6DT rulriJumm ~6\l6U~ ml.mumm)
Avera.ge Accounts Receivable (61J?T6ffliurra; ru~ru6mljl.tu~)
Credit Sales = Total Sales - Cash Sales •
[l!&Lm ~umm- = Gwrr~~ 6illJDUffloOT - Qrnre;a; rulpJum6lJT]

Average Accounts Receiv able =

Opening Debtors + Closing Debtors
2 +
0 . .
perung Bills Receivable + Closing B1·11 s R ece1va
.
ble
. 2
' (or)

Debtors + Bills R ece1va

. ble

(or)

l11JTTffl.Jrr6, ~ •
Debtors only
~ii:-
a's Students Advisor . 850 Management Accounting·

rite down formula for Creditors Turnover Ratio.

LAf'jC~rrir mlJDU61DQJT ml5l~u, ~6;~1J6;~mm- 6T(!g~Bi.
eanin of Creditors Turnover Ratio : It indicates the speed with
hich the payments for credit purchases are made to the creditors. The
tio can be computed as follows :
Credit Purchases
Average Accounts Payable
e term Accounts Payable include 'Trade Creditors' and 'Bills Payable'•
erage Acc~unts Payable mean average of opening and closing balance
creditors and Bills Payable.

lain Stock Velocity Ratio~

5t~u4 awJi>c!ft ml5l~th mlm5~Bi.
ck Velocit Ratio : Stock Velocity r_atio .measures the velocity of
version of inventory st~ck into sales volume.
s : .It is usefur to indicate whether inventory has been effectively

'
Cost of goods sold
Ratio - Average Inventory
goods sold mean sales value minus Gross Profit.
Op. Stock + Cl. Stock
Inventory -
2

of goods sold ts Rs. 5,,00,000. Average Inventory ts· 50,000.

5,00,000
Stock Velocity - JQ 1iroes
50,000

is Working Capital Ratio ?

(!116U~QJT ml51~u, 6TATjl)IT6U 6TATAT ?

in Ca ital Ratio : Working Capital Turnover Ratio indicate the

·ve use of net w_prlang capital · in making sales. Net working
. is Current Assets - Current Liabilities.
Net Sales
Formula I

Working Capital
I t.fa},ura·s Students Advisor

·F or E:xnnmJe :
B 51 Management Accoc,

- b.00.000 -.
· Rs.
"'-='a l t' lS The Net Working C ap l· tal is Rs. 2,00,000.
6,00,000 = 3 times.
2,00,000
Uses : Higher turnover indicates ef11-.i:.ective use of Net

16. - - down the form11 Ia fio r. Capital gearing ratio.

JJrite
CYJru~m BiY!lD• 61 rnl£1~,q;~m
PP ~~~IT~~61Dm 6T@~a;.

. r 6\)~61JT BiY!!Dlfl
Capital Gearing R a t IOCYJ ml~tbJ :

Funds bearing Fixed Interest (or) Fixed Dividend

⇒ Total Capital Employed
_® 6Ul 6\llUIT6M IDlffilT~ µ>
6l.JL• 19,611)l1J f"'I ..fle;6ir
rfl1:,!-11 0\ 16U6U@) !f>)6ll>6UUJIT61IT UffilffilT~ITUJUI
(C'J

⇒ 6i1wn ¢¢ID i+@u®¢d,lw (91¢&b . -

Funds bearing Fixed Interest (or) Fixed Dividend :-
(®rn6\lwrrm ruL..19-mlU Qa;rr61im_ it)~ (~6U6\l) Jt)m6\l1UIT6M Uffi.lffilT!J'jlTUJUl]

Examples: 12% Debentures, 7% Loan (or) Debt, 7½% Preference Sh

[12% ffiL6UTU~!®ITLD, 7% ffiL6l!T, 7½% (Yl6llTWJiftmw Uffil®ffi6TT]

Total Capital Employed = Share holders Funds+ Long-tem_i

[GLDrr~~Ul FF(b)u®~~IU (Yl~6U = Uffil®!fjlTQ"ITB,6Tf Jtl~ + ~mlTL c$JT6\) ffiL,Ar]

17. What do you mean by Return on Investment ?

Return on Investment [Roi) : It is known as accounting rate
r~turn because it takes into account, the accounting concept of p
[1.e., Profit after depreciation and tax] and not the cash inflows.
project which yields the highest rate of return is selected.
methods. rate of return may be calculated by any of
The accounting
following

1. ARR Average Annual Profit

Original Investment X 100
[Or]
- 2. ARR Average Annual Profit
-
Average Investment X 100
The term average annual profit fi
depreciation and tax over th 1· £ re ers to average profit
1
e e of the project.
ura 's Students Advisor B 52
Th . Management Accounting
e average mvestme t b
methods n can c calculated by any of the foll .
· owing
_Original Investment
2 (Or) Original Investment _ Scrap Value
• •, .,. . Ui . 2
., , I

~
JF> rr ui (Yl 6U'@ Q uw14 ui Q uSl • • • • •
nnmm a:, • "' • ~rrm& 6'6l(!l>Jn0J tE!rnLffi®LD mrru~~m ~f9.UUrnLUll6b @.ffi~
cr- ;.:, lim"a:»o,1Lu U@tE)m,11;, Q • • . . •
r'.ir,i,• ITITa:,e; 9...61T 6UIJ'61t 6T@~~ffi QffilT61T6U0J tEJrnLUJIT0J.
~~d>lrrui. : l'IIJ'ITa:tft 6U(!l>L 6UITUUI

LmTmLDwrrm (Yl~6U@ X 100 = %

[Or]
8'1J'lr6tft 6U(!l>L 6UITUUI

61J'lr6tft (Yl~6U@ X 100 = %

What is Debt Equity Ratio ?

Debt - Equity Ratio
: Debt - Equity Ratio creates the relationship
between shareholder
networth. and outsiders long - term funds.
Shareholder Funds
- Share Capit~l + Reserve & Surplus
Long - term Funds Debenture, Mortgage Loan etc.
:. Debt Equity Ratio = Long - term Debt
Shareholder Funds
Non - Current Liability - Explain.
Non - Cur,rent Liability : These liabilities are generally repayable
either i_n · longer period or at the close of the business. Example :
Share Capital, Delrentures, Long - term Loan etc. These Non - Current
Liabilities are not affect the Working Capital.

Write a short note on Leverage.

Leverage : Leverage is indication _. of the proportion between owner's
funds and non - owner's funds.
Qir,tii4C5rr6U uJi>JDl llll)I @;jDlu4 6T@IJBi.
Q~Ul~ClH@ : QJI>tii4(:5rr6\) maru~ m1UJITUITIT~t;}6U (Yltl)6UITmluSlAT '161f,ffi~ ~,,ia;~u, UlJDJDIUI
_a.LAT Jt)t;Ja;@;tii 9...mm Qtl)rrLrr4 Qn;u,4Ca;rr.u ~®ili.
 B 137 Management Accoullfl

t,layura's Students Advisor -.!!I

[u. c~sH !_:-ovl]
A
-SECTION - [A ri1 ·

1.
ff1tat is Cash. Flow Statemelll ?
Meaning of Cash Flow : A Cash flpw statement is a statemen!
, p ~
~hoWiii
~hanges ::'. cash position from one period to another. It also reveals the lllcrea.iif
?' _deci:ease in cash of a compan)' during a particular penod. ~t shoves
lfiltow and outflow of cash during the period and finally the closmg bal •

QIJlHfi5 !9~ 9LLI.D 6"'"a.T!l)ll"al if~~ ?

QrrM 9LL .,_ c)i,,:;e; : QIJ1T5BI 1,l.L ~"''"" miiru:151 !ii® !l!iJ!llil!lh'..L ,orra,!i;i'cfil__.
in!1J:07;_:; oo -.. ;;;;1>::;@i G,.-Sas ;116'!.,..,inulliU ._mor inrr!!)J!!i"'., !/!iJ!ll,i;,l;lliirJD~· C:..pi
~;;:ec.s::o 03 ;,;;~ci:.:.,__ e;rrru;;;jilOJ Qqmi;&Ul ~jilasifljl;:151oiror!bf' ? ~6Ual§
...;;-....,-? """"""'" ,.m:_(jl,llj!J/j!,Ql)lT<i;e; 9.'..L ~""'"'ull"' · QIJIT'5'5 .__..- 9LLUI
G!:..~ e-· ~so;,; o:~o:f!i;~, ,...,L,llulliU @!!)l!!i Ql)1Tffia;ull®Ll4 .,QJru61Tlill "oiruom!!i ....:
[April ·2013,
2. V{hat are the o·bjectives of Cash Flow ? . (Or),
[April
State the uses of Cash Flow Analysis.
Cses of Cash Flow :
v, :t discloses the movement of cash.
:, It discloses the success or failure of cash planning.
\ .) J Plt is useful in internal financial management for repayment of
urchase of new machineries etc.
(4) \Vith
be achi d ,of cash flow ana1ys1s,
the help .
• effi1c1ency . cash management
in
eve .
(5) Cash Analysis
Flowyear
cash flow to year. . of
will p rovid ea better measures-for comparison

rfl..0 c.L, • ..0 •

QIJ'ITB;c!!; /!l'
• ~ "ii' L 9;) ~ - •
J!i AT A> U1 a-, QD '1T' ~'11'5@5,
...c'I •
•

Qvre;6) uJdJ SLL9J~• 9iiiu,11Jra-.m . !

( 1) cllwrrurrrr~d,l~ Qrrrr a,e; /!l'6lll6UUUJD!fll

rA • •• ~p51W r;;;) • •
(2) Qrrrra,Bi ID~Ut!@ (Cash BUdget) ~LL~j
•
. lft>•l!i~
• Q
~i:@ffima; L~~5l6irm.,q;.1
~~ ..,.
pp•
@LL • uUJATu@,lll!)/jJ, arr ruJDJDl C:!5rr6llo,IJ..,UJ ioj9Ll!llL
( 3) ~ l!i @lfila;
Q • rr 6U • •
a; L QIT e; mm LELL6U, 4jLU ~i~ ·
~
) Q
ID 6U IT film 6Dl ID
. •
rrrttJ,e;ID 61l>B>[email protected]
~
(!P 1¥- 614 e; th IA r;) ,
(Yim
..,i,!5
•
~!Dl•"'"' .
• ;..,, )!JI IJlD
,,
ULU611ru@ffil!D~•
(: •
6lJ ITl!il@) ,q; 6U
urr"'JD"'"'
(45) . J!)lialW ~lU614 Q • •
Q661!TJD ~6m1¥-6UT Qrrrrti;e; n; • 6lU6lJ~!!)@) UlU6UTU@&im.,q;.1
( !, , • pLIO•LL ..0 , ,,,.,..
LIDITLL ~!!5l8>61l>ffil4LAT ~Ut!L.fi"l
\!>'
~:,!J•ffiA>B;ff)llJ
6U(!51!1.11$1T6U~..£1. @.ffi,11;.
• -;u • •
~Alfa,.AT
~!DC§ ~Lu.BL uwtiiru
 ura's Studonts Advisor
Br 138
~ . Management Accounting
JJ'rite u note cash firom operat·
on \
3
· ~ fr.om O peration . C ion. [April 2015]
with the help of net- p · fi ash from Operations cap ' be determinid
1
deprec iation, loss on salro } 5 figure. In this meth9d, the amount of
and other non - cash e e O fixed assets, intaqgib(e assets written off
other hand all non _ b ~pens~s are added with net profits. On the
. usiness income . . . bl k .
trade, prepai d expenses · . . s, increase 1n rece1va es stoc 1n
ayables should b d, reduction 1n deferred credit and decrease in
P e re uced from it .
Net Profit [as per income
statement] . XXX
Add :
1. Depreciation . . XXX
2. 0
L.oss ~ sal~ of Fixed As~et written off . XXX
3. Goodwill written off V
XXX
. 4. Advertising suspense a/c written off XXX
5. Increase in payable XXX
6. Decrease in Receiv'4ble XXX
. XXX
. XXX
Less .
I. Increase, from Investments XXX
' 2. Increase !n account receivables XXX
3. Increase in prepaid expenses XXX
4. Decrease in outstanding Exp. . . XXX
\ ,.
- XXX
Cash from trading operations XXX

Qrrrra,IJ,~~m (Y>6UUIIUII' '1lfW6UUll'L.'9-AI' BIJl)I ®J61U4 6lJA>lf5.

Q[ITOifll_(Y)i\>fliilT_QuwfiUWIJL•AT QHTQl : mlUJrrurrir 6'\lrru~!£16ir ru~UJIT5 c$lmLB>®LD QIJJT6>5~!!)~
"Qrrrr U.6, C!J)6'\l![,6GT G.'16WUIT@ 6lJlf6l.f' 6Tfffj!)J QuUJrr. ®.ffi~ 6lJIT~ ~YJ6;6WL6lJJf!l)J 56ffl8>~L6UITU).
JD e; IT 6'\l rr u Ul [6UITU & JT>LL (:J;fiRTB;@Ulp.] XXX
I
6n.L@ : "'1rrrrB>e;ili Qru61fl Q66U6'\llT~
. . Q66'\l~f'
I

I. C!f>WU>lrATUl . . XXX

2. Jf;}m6'\llUfTAT Q6rr~~ rulJD!D~6U JI,LLLD I

. . XXX
• ' XXX
3. J:!>RTU>d,)U~ IB>&°IUJ~ . • •
4. Ul!!)!!} (!PArBn..Llp.CUJ Q66U~ -='lje;rfl~1[,6U .. XXX
. XXX
XXX
~ : "mlLUrl.lllJlD CffilrB>5li> ®'i>''""I 6lJ01>~mue;m''
I. lY1JaT@ tE~ ruLi,. ·. . ' .
. XXX

2. ruir<:.AJ61ifr¥ Wlill> 611561f1Ar -='!d;lliiflu4 XXX

. • r XXX
QrrrrB>.s ltll6UffiAI' QlfUJa>urr@ XXX
- .. ,
 _ .,.:ra•s St uden ts Ad vis or B 16 2 . . .. . .
~
~u 1r ,· Co nlr ol & Ca pit al Bu
dg eta rv Co ntr ol
B- -;~ -!.1 0 Co ntr ol - ~1 ean ing - Pre
pa rat ion of Va rio us Bu dg ets .
C_apit::' ~-_:g~Tting - ~'1 e~ ing - As
ses sm en t of Ca pit al Inv ~s t~e nt _ Pa
~P \ - A1'. ... - .R R Eic .. yb ack -

( I.. Bt :D GE .T AR Y- CO NT RO
L )
SE CT IO N - A
1. U11a1 do _i·ou 111ean by Bu
dg eta ry Co11trol ? (O r) [A pri l 201 5]
Defi11~ bu dg eta ry co ntr ol.
Bu dg eta rv Co ntr ol : De fin es as,
"th e est abl ish me nt of bu dg ets rel ati
_,p o- sib il:t i es of exe cut ive s to the ng to the
req uir em ent s of a policy, an d the con
~ ~? ari son of act ual wi th bu dg ete tin ou s
d res ult s, eit her to sec ure by ind ivi du
t e oo jec tiv e of tha t po lic y or to al act ion
pro vid e a basis for its rev isio n".
G,if].£:.J ~ffi m i . . ~ - ru6m1JWWJ-
c.-; ~ - a:..@JurrS: ;;6lllT611 Qt'f6Ufilt
ffiL@uurr@ @WJ6ll61rr~ef,lm !f>6DlL(Yl6Dl!
§.:. _ _.:_@u ~.: .t.J ~!b @$la,& !)6DlW ~L L~ ~L fiil r
'l6ir!!)~- 6lJIT6lt Gt'f6Ufilt~ ~L L
ffiL@UUfTLi9-6DT eYJ6UUl ~L..Lt.6lLL
...,..LQ;.,_ ~ e; e; <.9 ffi(§tn, s!,!!)~urr
ms!,W !f> L ru tr- ffi 6Dl ffi ffi ® ffi ® LD ~ 6ir m
•~r u q !DL@ ~~ UUJ.iiru@ ffil !!')~
~ ru WJ u rr@ ffi mm ffi 6Dl mft>~
. ~ ~rr ru~ ~L L LfilL L ruwJi.al6
Ul®J!>~ 6J!!)LI@Ul LDITIDJ~&ilffim 6TT
Q~riJ6.l!!)~-
) Defi11e the ter111 ''B ud ge t".
Uu d ge l : A hu dg et is a pla n (Ap ril 201 4, Nov. 201 4]
of act ion ex pre sse d in · fin anc ial
no n fin an cia l ter ms . It is pre par ter ms . or
ed for a def ini te per iod of tim e.
a pla nn ed est im ate of fut ure bu It is
sin e~s co nd it_ion s suc h as the sal
and pro fit . A bu dg et is a too es, co st
l wh ich hel ps the ma na ge me nt in
an d co ntr ol of bu sin e:s s act ivi tie pla nn ing
s.
Ac co rdi ng to IC MA , En gla nd ,
a bu dg et is, "a fin an cia l an d/
qu nn tita ti, e sta tem en ts, pre par or
ed° an d app rov ed pri or to a de fin
of ti me , of the po lic y to be pu ed pe rio d
rsu ed du rin g the pe rio d for the
pu rpo se
of au ain ing a giv en ob jec tiv e".
3. IVllat is Fl ex ibl e Bu dg et
Fle xib le Bu d~ et : Ac co rdi?ng
~o l.C .M .A ., Lo n? on , A Fle x1b lc
"a bu do et de sig ne d to ch an ge Bu dg et,
in acc ora an ce wi th the
an arn ecf '. Fle xib le Bu dg et is pre lev el of act ivi ty
par ed by tak ing · int o acc ou nt . the
fix ed
and \ ari ab le ele me nts of co st.
..
O_s &ltj,~ rurr nt Q • • ?
8 60 '2t ~L . L-UI ,uar,>rra> ,u,uar .
· '4;;6).w~ rurr~ 0,uc..m ~k u.o _(w n~ !D
,i·, •oJ!J.W : LDITWJLI> LJPU~~ !Prn
.Uc$@ 6J!DL
.o:
El! rus:,wci,&uu@&lQJJ!!) ~L L LDl,}W
·· @ ..QJ;ffiWfilt rurr ~ Qc!J6U~ ~LLLDIT@
rrm• ·.slfirm Qc!Ja>mlllH!llffifil ffi6 lJA r~~ 6U
!:'_, WUJ rUU T lD~! !)llD lD .-.°
" ;:.,
Ul". fil.r1~
ef,)LL~@"
Qe;rrQAfr@ ~wrr,tlB;e;uu@c$'16iir!!)6
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 Management Accounu
8163
I

What is nMaster
d Budget ?
rporating all functi·
Mast er uu
. iet : 1t is a summary budget d•rt: incot fun ctlOnal
. b udgets
u gets 1n a capsule form · It interprets
. iueren
of •
proj ected 1ncom e sta t em
b d
covers within its range the preparation
and projected balance sheet.
7
u\1f~tt"1' QJIJ~ Q.yro~ ~i:..l-w irgrtl)rr.-i> ir~sr
, • • •
. . .
~
• ~"'!JII ud1 6miJIlb if,) LL-"'""' i''"'''!> lb
~~6n'1DUI rurrru QuroJhbYI · uro . . . ., @ ,@Ll)IQJ~~~~ uSli» Uill
if,)LLii;if,l~l'!i "(!Jllb"'"''" Q/COI Q6.,0I ifJL-L-ID ~~ID • • q) . "'°"'" ®if.iu4!i'
~ o "-'"""-,;,dhJI!"®"'· @ii;V-<ir '"®'"mu """"'®• @@"l,..... a,...-
W/rat do you mean by Production Budget . ? [April
5. Production Bndeet : Toe budget is prepared based on ~ales Budget
;;,;mates quantity of production in terms of items, penods, areas

~
9..~u~~ w~uJt:.@ .w6JliWlii 6T~u~~ Quir~fiT wrr~ ?
. l-Jhusiidi! i9LL-U. : @JI!' j!ILL-U. mJ~u,,11,r if)LL-ji;A>lb ..Uu11>L-Wrr,.,$ QM
i,;lllmfi,i;,.Uu@&l!D~· @if,lRI ,,_~uii,i!I ~61fOI @L-U. "'mfl,urra;, @""1D lllmflwir5,
rumflwrr& (YI~ a,~u4 G6wwuu@6>lJD~·
What is Cash Budget ? Whal are the Uses (or) Functions of
Budget ? (Or) Explain the advantages of cash budget.
Meanine of Cash Budeet : Control of cash position is a im
part of the financial management of a business. Cash budget repre
the cash requirements of the business during the budget period.
compares the estimated cash receipts and estimated cash payments
the company and shows the resultant cash position. It is a device
co-ordination and controlling the financial solvency of the comp
Advantages of Cash Budeet : .
The cash budget offers the following advantages :
(1) It ensures that sufficient cash is -available when required.
(2) It reveals. an~ expected cash shortage, so that necessary steps
be taken m time like a bank overdraft (or) loan may be
(3) It reveals any excess of cash so that th
invested for a sh rt . d
o peno .
e excess cash maf
(4) It. shows whether cash expenditure can
without borrowing.
(5) It reveals the availability of h th ,
of cash discounts. cas so at advantage
ttfayura's Students Advisor_ • B 164 , Management
;:..----
1. State the i111porta11t matters covere,l ;,, " but/get manual.
What is Budget Ma11ual ?
'

_!!udget Manual : Budget Manual is defined as u 8 d .

. . . ... , ocument wh,ch sets
out inter - aha the respons1b1httes of the persons d .
engage In the routine
of and the forms and records required for budget
. . ary control". Ther~fore
a record staung the functions and responsibilities of each executive.
Advantages of Budget Manual :

( 1) It helps to explain the objectives and principles of budgetary control.

(2) It helps to fix duties and powers of the budget officer.
(3) It helps to fix functions and duties of the bud.get c~mmittee.
(4) Budget period is fixed.

s. Explain the classification of budget according to flexibility. (Or )

Explain Fixed and Flexible Budget.

Classification of Budget according to Fl~xibility
On the basis of flexibility, budgets can be divided into two
categories. They are (1) Fixed Budget (2) Flexible Budget.
(1) Fixed Budget : A budget prepared on the basis of a standard or
a fixed level of activity is called a Fixed Budget. It does not
change with the change in the level ot activity.
(2) Flexible Budget : A budget prepared in a manner so as to give
the budgeted cost of any level of activity is termed as a flexible
budget.

9. What is BudgeJ Period ?

Budget Period : "Budget Period" means the period for which a budget
is prepared and utilized. The budget period will depend upon (i) the
nature of the business concern and (ii) the control and management
techniques to be applied. For example, a seasonal industry will prepare
the budget f~r each season. ,