B.

Com VI Semester – Management Accounting (CBCS) Theory 1

UNIT - 1

NATURE AND SCOPE OF MANAGEMENT ACCOUNTING

 MEANING OF MANAGEMENT ACCOUNTING

Management Accounting is comprised of two words ‘Management’ and

‘Accounting’. It is the study of managerial aspect of accounting. The emphasis of
management accounting is to redesign accounting in such a way that it is helpful to the
management in formation of policy, control of execution and appreciation of
effectiveness.

“Management accounting is concerned with the accounting information which is related

to management, for planning controlling and decision making”.

 DEFINITIONS OF MANAGEMENT ACCOUNTING

1. Robert N. Anthony: “Management Accounting is concerned with accounting
information that is useful to management.”

2. Brown and Howard: “The essential aim of management accounting should be to

assist management in decision making and control.”

3. The Association of Certified Corporate Accountants (U.S.A): “ The application of

accounting and statistical techniques to the specified purpose of producing and
interpreting information designed to assist management in the function of
promoting maximum efficiency and in envisaging, formulating and co-ordinating
their execution.”

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 B.Com VI Semester – Management Accounting (CBCS) Theory 2

 CHARACTERISTICS OR NATURE OF MANAGEMENT ACCOUNTING

The task of management accounting involves furnishing of accounting data to the

management for basing its directions on it. It also helps, in improving efficiency and
achieving organisational goals. The following are the main characteristics of
management accounting:

1. Recent origin:
Management accounting is a recent origin developed to overcome the limitations
of financial accounting and cost accounting.

2. Service function:
Management accounting renders service by providing information required by
the different levels of management for discharging their functions.

3. Highly sensitive to management needs:

Management accounting concerns itself with the presentation of all the data
needed by the management, at the required time and in the most suitable form.

4. Selective and discriminating in reporting of data:

It concentrates and highlights the relevant facts, out of mass data. It picks up only
relevant and useful information and communicates the same to the management
in solving the managerial problems.

5. Cause and Effect Analysis:

The financial accounting provides only the information about the quantum of
profit or loss for a particular period, whereas management accounting analyses
the cause and effect of such profitability.

6. Inter-disciplinary Subject:
Management accounting is not an independent discipline; it depends on both
Financial Accounting and Cost Accounting.

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 B.Com VI Semester – Management Accounting (CBCS) Theory 3

7. Does not follow set rules and formats:

Financial accounting and Cost accounting follows set rules and formats, but
Management accounting does not follow any set rules and formats.
The rules and formats of Management accounting are determined by the
informational needs of the management.

8. Mainly concerned with future:

Management accounting is not only concerned with post mortem or historical
data for analysis. It is mainly concerned with forecasts or estimates of the future.

9. Provides data and not the decision:

Management accounting is concerned with provision of analysed information to
the management and decision making is discretionary to the management

10. Use of Special Techniques and Concepts:

Management accounting uses special techniques like financial planning, analysis
of financial statement, standard costing, budgetary control, marginal costing etc...
To make the accounting data more useful to the management to take appropriate
and important decisions.

 SCOPE OF MANAGEMENT ACCOUNTING

Management accounting is a new approach to accounting. It provides techniques for the

interpretation of accounting data. It also helps in developing realistic approach to future
course of action. The main aim is to help management in its function of planning,
directing and controlling.

1. Financial Accounting: Financial accounting deals with the historical data. The
recorded facts about an organisation are useful for planning the future course of
action. Though planning is always for the future but still it has to be based on
past and present data. The control aspect too is based on financial data. The
performance appraisal is based on recorded facts and figures. So management
accounting is closely related to financial accounting.

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 B.Com VI Semester – Management Accounting (CBCS) Theory 4

2. Cost Accounting: Cost accounting provides various techniques for determining

cost of manufacturing products or cost of providing service. It uses financial data
for finding out cost of various jobs, products or processes. The systems of
standard costing, marginal costing, differential costing and opportunity costing
are all helpful to the management for planning various business activities.

3. Financial Management: Financial management is concerned with the planning

and controlling of the financial resources of the firm. It deals with raising of
funds and their effective utilisation. Its main aim is to use business funds in such
a way that earnings are maximised. Finance has become so much important for
every business undertaking that all managerial activities are connected with it.

4. Budgeting and Forecasting: Budgeting means expressing the plans, policies and
goals of the enterprise for a definite period in future. The targets are set for
different departments and responsibility is fixed for achieving these targets. The
comparison of actual performance with budgeted figures will give an idea to the
management about the performance of different departments. Forecasting, on
the other hand, is a prediction of what will happen as a result of a given set of
circumstances.

5. Inventory Control: Inventory is used to denote stock of raw materials, goods in

the process of manufacture and finished products. Inventory has a special
significance in accounting for determining correct income for a given period.
Inventory control is significant as it involves large sums. The management
should determine different levels of stocks, i.e., minimum level, maximum level,
re-ordering level for inventory control.

6. Reporting to Management: One of the functions of management accountant is to

keep the management informed of various activities of the concern so as to assist
it in controlling the enterprise. The reports are presented in the form of graphs,

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 B.Com VI Semester – Management Accounting (CBCS) Theory 5

diagrams, index numbers or other statistical techniques so as to make them

easily understandable.

7. Interpretation of Data: The management accountant interprets various financial

statements to the management. These statements give an idea about the financial
and earning position of the concern. These statements may be studied in
comparison to statements of earlier periods or in comparison with the
statements of similar other concerns. The significance of these reports is
explained to the management in a simple language

8. Control procedures and Methods: Control procedures and methods are needed to
use various factors of production in a most economical way. The studies about
cost, relationship of cost and profits are useful for using economic resources
efficiently and economically.

9. Internal Audit: Internal audit system is necessary to judge the performance of

every department. The actual performance of every department and individual is
compared with the pre-determined standards. Management is able to know
deviations in performance. Internal audit helps management in fixing
responsibility of different individuals.

10. Tax Accounting: In the present complex tax systems, tax planning is an important
part of management accounting. Income statements are prepared and tax
liabilities are calculated. The management is informed About the tax burden
from central government, state government and local authorities. Various tax
returns are to be filled with different departments and tax payments are to be
made in time. Tax accounting comes under the purview of mamnagement
accountant’s duties.

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 B.Com VI Semester – Management Accounting (CBCS) Theory 6

11. Office Services: Management accountant may be required to control an office. He

will be expected to deal with data processing, filling, copying, duplicating,
communicating, etc. He will also be reporting about the utility of different office
machines.

 RELATIONSHIP OF MANAGEMENT ACCOUNTING WITH FINANCIAL

ACCOUNTING

Despite the close relationship, there are certain points of distinction between
financial accounting and management accounting. The main points of distinction are
discussed as below:

1. Object: The object of financial accounting is to record various transactions with

the purpose of maintaining accounts and to know the financial position and to
find out profit loss at the end of the financial year. On the other hand,
management accounting is essential to help management in formulating policies
and plans.

2. Nature: Financial accounting is mainly concerned with the historical data.

Management accounting deals with projection of data for the future.

3. Subject-matter: Financial accounting is concerned with assessing the results of

the whole business. While management accounting deals separately with
different units, departments and cost centres.

4. Compulsion: The preparation of financial accounts is compulsory in certain

undertakings while these are a necessity in others. Management accounting is
not compulsory.

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 B.Com VI Semester – Management Accounting (CBCS) Theory 7

5. Precision: In management accounting no emphasis is given to actual figures. The

approximate figures are considered. In financial accounting only actual figures
are recorded and there is no room for using approximate figures.

6. Reporting:. These reports are prepared not only for the benefit of the concern but
also for outsiders. Management accounting reports are meant for internal use
only.

7. Accounting Principles: Financial accounts are governed by the generally accepted

principles and conventions. No set principles are followed in management
accounting.

8. Period: Financial accounts are prepared for a particular period. Management

accountant supplies information from time to time during the whole year. There
are no specific periods for which management accounts are prepared.

9. Publication: Financial accounts like profit and loss account and balance sheet are
published for the benefit of the public. Management accounting statements are
prepared for the benefit of the management only and these are not published.

10. Audit: Financial accounts can be got audited. Management accounts cannot be
audited.

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 B.Com VI Semester – Management Accounting (CBCS) Theory 8

 RELATIONSHIP BETWEEN COST AND MANAGEMENT ACCOUNTING

1. Object: The object of cost accounting is to record the cost of producing a product
or providing a service. The purpose of management accounting is to provide
information to the management for planning and co-ordinating the activities of
the business.

2. Scope: The scope of management accounting is very wide. It includes financial

accounting, cost accounting, budgeting, tax planning, reporting to management.
On the other hand, cost accounting deals primarily with cost ascertainment.

3. Nature: Management accounting is generally concerned with the projection of

figures for future. Cost accounting uses both past and present figures.

4. Data used: Only quantitative aspect is recorded in cost accounting. Management

accounting uses both quantitative and qualitative information.

5. Development: The development of cost accounting is related to industrial

revolution. Management accounting has developed only in the last thirty years.
Management accounting and cost accounting are both complementary subjects.

6. Principle followed: Certain principles and procedures are followed for recording
costs of different products. No specific rules and procedures are followed in
reporting management accounting.

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 B.Com VI Semester – Management Accounting (CBCS) Theory 9

 TOOLS AND TECHNIQUES OF MANAGEMENT ACCOUNTING

A number of tools and techniques are used to supply the information required by the
management. No one technique can satisfy all managerial needs. The tools and
techniques used to management accounting are discussed as follows:

1. Financial Policy and Accounting: Every concern has to take a decision about the
sources of raising funds. The funds can be raised either through the issue of
share capital and through the raising of loans. Again a decision is to be taken
about the type of capital, i.e., equity share capital or preference share capital.
Preference share capital can be sub-divided into a number of types.

2. Analysis of Financial Statements: The analysis of financial statements is meant to

classify and present the data in such a way that it becomes useful for the
management. The meaning and significance of the data is explained in a non-
technical language.

3. Historical Cost Accounting: The system of recording actual cost data on or after
the date when it has been incurred is known as historical cost accounting. The
actual cost is compared to the standard cost and it gives an idea about the
performance of the concern. Though costing is important but by itself its utility is
limited.

4. Budgetary Control: It is a system which uses budgets as a tool for planning and
control. The budgets of all functional departments are prepared in advance. The
budgets are based on historical data and future possibilities. The actual
performance is recorded and compared with the pre-determined targets.

5. Standard Costing: Standard costing is an important technique for cost control

purposes. In standard costing system, costs are determined in advance. The
determination of standard cost is based on a systematic analysis of prevalent
conditions. The actual costs are recorded and compared with standard costs. The
variances, if any, are analysed and their reasons are ascertained.

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 B.Com VI Semester – Management Accounting (CBCS) Theory 10

6. Marginal Costing: This is a method of costing which is concerned with changes in

costs resulting from changes in the volume of production. Under this system, cost
of product is divided into marginal (variable) and fixed cost. The latter part of
cost (fixed) is taken as fixed and is recorded over a level of production and every
additional production unit involves only variable cost. Marginal costing is helpful
for measurement of profitability of different lines of production, different
departments and divisions of an enterprise.

7. Decision Accounting: An important work of management is to take decisions.

Decision taking involves a choice from various alternatives. There may be
decisions about capital expenditure, whether to make or buy, what price to be
charged, expansion or diversification, etc.

8. Revaluation Accounting: This is also known as Replacement Accounting. The

preservation of capital in the business is the main object of management. During
periods of rising prices, the value of capital is greatly affected. According to Batty.
“Revaluation accounting is used to denote the methods employed for
overcastting the problems connected with fixed asset replacement in a period of
rising prices.”

9. Control Accounting: Control accounting is not a separate accounting system.

Different systems have their control devices and these are used in control
accounting. Standard costing and budgetary control can be exercised through
variance analysis reports. In control accounting we can use internal check,
internal audit, statutory audit and organisation and methods for control
purposes.
10. Management Information System: With the development of electronic device for
recording and classifying data. Reporting to management has considerably
improved. The data planning co-ordinating and control is supplied to the
management. Feed back of information and responsive actions can be used as
control techniques.

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 B.Com VI Semester – Management Accounting (CBCS) Theory 11

UNIT - 2

FINANCIAL STATEMENTS ANALYSIS

1. What is financial statement?

Financial statement means a report, which is prepared at the end of financial
year by an accountant.
In other words financial statements are the end reports of financial
accounting, prepared to show the financial position and net results of the
organisation.

2. State any four objectives of financial statements.

a. To provide reliable financial information about economic resources and
obligations of business firms.
b. To provide other needed information about changes in such economic
resources and obligation
c. To provide reliable information about changes in net resources arising
out of business activities.
d. To provide financial information that assist in estimating the earning
potentials of business.

3. What do you mean by financial analysis?

The process of determining financial strengths and weaknesses of the firm by
establishing the relationship between the items of balance sheet and profit
and loss account.

4. What do you mean by interpretations of financial statements?

Interpretation means explaining the meaning and significance of data
simplified and drawing the suitable conclusions.

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 B.Com VI Semester – Management Accounting (CBCS) Theory 12

5. State the tools and techniques or methods of financial analysis.

a. Comparative financial analysis
b. Common size financial analysis
c. Trend analysis
d. Ratio analysis
e. Fund flow statement
f. Cash flow statement

6. What do you mean by comparative financial statements?

The comparison of two different periodical financial statements by putting
them on separate sides and finds out the changes with respect of each item of
the statements and overall changes in absolute and relative changes is called
comparative statement.

7. What do you mean by common size financial statements?

It is the statement which facilitates to compare the financial statement or not
only one company but also of different companies and financial statement
prepared over a period of time.

8. What do you mean by trend analysis?

Comparison of past data over a period of time with the values of the base
year is known as trend analysis.

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 B.Com VI Semester – Management Accounting (CBCS) Theory 13

UNIT - 3

RATIO ANALYSIS

1. What do you mean by ratio analysis?

Ratio analysis is the technique of the computation of a number of accounting
ratios from the data found in the financial statements and interpreting the
financial performance of the organisation with the help of ratios.

2. State the types of ratios.

a. Liquidity ratios
b. Solvency ratios
c. Turnover or activity ratios
d. Profitability ratios.

3. Mention any four balance sheet ratios.

a. Current ratio
b. Liquid ratio
c. Absolute liquid ratio
d. Debt – equity ratio
e. Proprietary ratio
f. Capital gearing ratio.

4. Mention any four income statement ratios.

a. Gross profit ratio
b. Net profit ratio
c. Operating ratio
d. Operating profit ratio
e. Expenses ratio

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 B.Com VI Semester – Management Accounting (CBCS) Theory 14

5. Mention any four combined ratios.

a. Debtors turnover ratio
b. Creditors turnover ratio
c. Stock turnover ratio
d. Asset turnover ratio

6. What do you mean by liquidity ratio?

Liquidity ratios are those ratios which establish the relationship between
current assets and current liabilities. These ratios measure the short term
solvency of the business organisation.
Important liquidity ratios are:
a. Current ratio
b. Quick ratio / Liquid ratio / Acid test ratio
c. Absolute liquid ratio.

7. State the significance of current ratio.

Current ratio is the ratio between the current assets and current liabilities.
The ideal current ratio is 2:1.
a. Current ratio throws good light on the short-term solvency
b. It is an indicator of a firms ability to promptly meet its short term
liabilities.
c. It helps to measure the working capital available in business concern.

8. What is quick ratio? State its significance.

Quick ratio is the ratio between quick assets and current liabilities. The quick
ratio is 1:1
Quick ratio is more rigorous test of liquidity of a firm, then the current ratio.
This ratio is of great importance for banks and financial institution.

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 B.Com VI Semester – Management Accounting (CBCS) Theory 15

9. What is solvency ratio?

Solvency ratios are the accounting ratios used to analyse the long-term
solvency of a business concern.
a. Debt-equity ratio
b. Proprietary ratio

10. What is debt equity ratio?

It is the ratio between long term debt and shareholder’s fund. This ratio
measures the relative claim of long-term creditors and owners on the assets
of the company.

11. What is proprietary ratio?

Proprietary ratio measures the relationship between shareholder’s fund and
total assets.

12. What is capital gearing ratio?

Capital gearing ratio is the ratio between fixed income securities and equity
shareholders fund. Fixed income securities include long term debt and
preference share capital.

13. State the significance / uses/ advantages of ratio analysis.

a. Useful in analysis of financial statements
b. Useful in improving future performance
c. Useful in judging the efficiency of a business
d. Useful in inter firm comparison
e. Helps in decision making
f. Helps in financial planning and forecasting
g. Helps in communicating
h. Helps in co-ordination
i. Helps in control

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 B.Com VI Semester – Management Accounting (CBCS) Theory 16

14. State the limitations of ratio analysis.

a. Reliability of ratios depends upon the correctness of the basic data
b. An individual ratio may by itself be meaningless
c. Ratios are not always comparable
d. Ratios sometimes give a misleading picture
e. Ratios ignores qualitative factors
f. Change in price levels makes ratio analysis ineffective
g. There is no single standard for comparison
h. Ratios based on past financial statements

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 B.Com VI Semester – Management Accounting (CBCS) Theory 17

UNIT - 4

FUND FLOW STATEMENT

1. What is flow of fund?

The term ‘flow of funds’ means transfer of economic values from one asset of
equality to another.

2. Define fund flow statement?

According to Robert Anthony, “The fund flow statement describes the sources
from which additional funds were derived and the uses to which these funds
are put”.

3. What do you mean by fund flow statement?

Fund flow statement is a statement of inflow and outflow of funds between
two balance sheet dates.

4. State any four current assets.

a. Cash in hand
b. Cash at bank
c. Bills Receivable
d. Sundry Debtors

5. State any four current liabilities.

a. Bills Payable
b. Sundry Creditors
c. Outstanding Expenses
d. Bank overdraft
6. State any four non - current assets
a. Goodwill
b. Land
c. Building
d. Plant and Machinery

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 B.Com VI Semester – Management Accounting (CBCS) Theory 18

7. State any four non - current liabilities.

a. Equity Share Capital
b. Preference Share Capital
c. Debentures
d. Long-term loans

8. Give the meaning of working capital.

The capital which is required for day to day operations of a business concern
is known as working capital. Usually working capital is the difference
between current assets and current liabilities.

9. Give the meaning of negative working capital.

Negative working capital means the current liabilities over current assets is
represents negative working capital.

10. What are non – operating expenses?

a. Depreciation
b. Loss on sale of fixed assets
c. Goodwill written off
d. Interim dividend paid

11. How do you treat provision for tax under FFS?

Case 1: As a current liability: If it is treated as current liability, it appears in
statement of changes in working capital.
Case 2: As a non – current liability: the amount of provision for tax paid is out
flow of funds, so treat it as an “Application of funds”
On the other hand the tax made during the year is considered as an item of
non – fund expenses, so it is to be added to funds from operations.

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 B.Com VI Semester – Management Accounting (CBCS) Theory 19

12. State any four sources of funds.

a. Issue of shares
b. Issue of debentures
c. Sale of investments
d. Sale of fixed assets

13. State any four applications of funds.

a. Redemption of shares
b. Redemption of debentures
c. Purchase of investments
d. Purchase of assets

14. State the managerial uses of fund flow statements.

a. Guides proper use of available funds
b. Acts as a basis for financial plan and budgeting
c. It gives early warning of coming financial dangers
d. It reveals the net results of business operations during the year in term of
cash.
e. Helps in borrowing
f. It helps in knowing the sources and uses of fund
g. It helps in analysing the financial operations
h. It helps in proper allocation of resources.

15. State the managerial uses of fund flow statements.

a. It cannot reveal continues changes taking place
b. It uses only historical information, which is not of much use
c. It ignores non fund items
d. It is only supplementary to balance sheet and P&L account.
e. It is not original statement; it is a re-arrangement of data found in
financial statements.

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 B.Com VI Semester – Management Accounting (CBCS) Theory 20

Difference between Funds Flow Statement and Income Statement

Funds Flow Statement Income Statement

(1) It highlights the changes in the (1) It does not reveal the inflows and
financial position of a business and outflows of funds but depicts the items of
indicates the various means by which expenses and incomes arrive at the figure
funds were obtained during a particular of profit or loss.
period and the ways to which these funds
were employed. (2) Income statement is not prepared from
(2) It is complementary to income Funds Flow statement.
statements; Income statement helps the
preparation of Funds Flow Statement. (3) Only revenue items are considered.
(3) While preparing Funds Flow Statement
both capital and revenue items are
considered. (4) It is prepared in a prescribed format.
(4) There is no prescribed format for
preparing a Funds Flow Statement.

Difference between Fund Flow Statement and Balance Sheet

Funds Flow Statement Balance Sheet

(1) It is a statement of changes in financial (1) It is a statement of financial position
position and hence is dynamic in nature. on a particular date and hence is static in
(2) It shows the sources and uses of funds nature.
in a particular period of time. (2) It depicts the assets and liabilities at a
(3) It is a tool of management for financial particular point of time.
analysis and helps in making decisions. (3) It is not of much help to management
(4) Usually, Schedule of Changes in in making decisions.
Working Capital has to be prepared before (4) No such schedule of Changes in
preparing Funds Flow Statement. Working Capital is required. Rather Profit
and Loss Account is prepared.

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 B.Com VI Semester – Management Accounting (CBCS) Theory 21

UNIT - 5

CASH FLOW STATEMENT

1. Define cash fund.

As per AS – 3, the term cash includes:
 Cash in hand
 Demand deposits with bank
 Highly liquid investments

2. What is cash flow?

Cash flows are inflows and outflows of cash and cash equivalents. The difference
between inflow and outflow cash is known as net cash flow.

3. What do you mean by cash flow statement?

Cash flow statement is a statement which shows inflow and out flow of cash
between two accounting period.

According to AS-3 (Revised), the cash flow statement should classify into three
main categories:

a. Cash flows from operating activities.

b. Cash flows from investing activities.
c. Cash flows from financing activities.

4. What are non cash transactions?

The transactions, which do not involve cash inflow or cash out flow. For example:
a. Purchase of assets by issue of shares
b. Conversion of debentures into shares
c. Purchase of fixed assets on credit.

5. What is meant by cash from operations?

Cash from operations are the cash flows from all the revenue activities of an
enterprise.

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 B.Com VI Semester – Management Accounting (CBCS) Theory 22

6. State the significance / uses / advantages of cash flow statement.

a. Useful in cash planning.
b. Assesses cash flows from operating activities.
c. Payment of dividend
d. Cash from investing and financing activities
e. Explain reasons for surplus or shortage of cash
f. Helpful in evaluating the current cash position.

7. State the classification of cash flows according to Accounting Standard – 3

According to AS-3 (Revised), the cash flow statement should classify into three
main categories:

a. Cash flows from operating activities.

Cash flows from operating activities are primarily derived from the principal
revenue-producing activities of the enterprise. Therefore, they generally
result from the transactions and other events that enter into the
determination of net profit or loss.

 Cash receipts from the sale of goods and the rendering of services;
 Cash receipts from royalties, fees, commissions, and other revenue;
 Cash payments to suppliers of goods and services;
 Cash payments to and on behalf of employees;

b. Cash flows from investing activities.

Investing activities are the acquisition and disposal of long-term assets and
other investments not included in cash equivalents. It includes:

 Cash received from sale of fixed assets

 Cash paid for purchase of fixed assets
 Cash received from sale of investments
 Cash paid for purchase of investments

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 B.Com VI Semester – Management Accounting (CBCS) Theory 23

c. Cash flows from financing activities.

Financing activities are activities that result in changes in the size and
composition of the owner’s capital and borrowings of the enterprise. It
includes:
 Cash received from issue of shares, bonds and debentures
 Cash received from loans raised
 Cash payment for redemption of shares, bonds and debentures
 Repayment of long-term loans.

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 B.Com VI Semester – Management Accounting (CBCS) Theory 24

UNIT - 6

MANAGEMENT REPORTING

1. What is report?
Report is the channel through which relevant information is consistently
supplied to the management. It is the communication of results by a subordinate
to his superiors.

2. What do you mean by management reporting?

An organised method of providing each manager with all data which he needs for
his decisions, at a time when he needs them and in the required form”. So, it an
organised, formal and comprehensive system of providing information to the
management.
The process of collecting, recording, summarising of financial information to help
the management is known as management reporting.

3. State the objectives of management reporting.

a. To assist in planning and controlling
b. To serve as a record of business performance
c. To represent the basic standard to measure the performance
d. To develop the public relations and image of the company to the world
business.

4. What is formal report?

A formal report consists of many pages, which are usually written by a third
person, and contains several sections or chapters by utilizing graphic aids.

5. What are informal reports?

Informal reports do not have any set standards and have no prescribed
procedure to write the report. Confidential reports will be in the informal forms.

ANIL KUMAR. ASST. PROFESSOR. VIDYAVAHINI FIRST GRADE COLLAGE. TUMKUR

 B.Com VI Semester – Management Accounting (CBCS) Theory 25

6. What is special report?

Special reports are submitted by enquiry officer after an enquiry of a special
nature has been conducted. Such reports will contain the information relating to
specific issues to by the people who have instituted an enquiry.

7. What is routine report?

These reports are prepared about day-to-day working of the concerns. They are
periodically sent to various levels of management. this report is known as routine
report.

8. What is statutory report?

Statutory reports are the reports prepared in accordance with the provisions of
law, annual reports, director’s report, auditor’s report are the examples of
statutory report.

9. State the requisites and essentials of a good reporting.

A good report should have the following requisites:

a. Good Form and Content
The following points be taken into account while preparing a report:
(1) The report should be given a proper title, headings, sub-headings and
paragraph divisions. The title will explain the purpose for which the report
has been prepared the title also enables to point out the persons who need
the report. A production report may be titled as ‘Production Report for the
Month of April 1992’. The title explains the purpose and period of
preparing the report.
(2) If statistical figures are to be given in the report then only significant
figures and totals should be made a part of it and other detailed figures
should be given in appendix.

b. Simplicity
The report should be presented in a simple, unambiguous and clear language.
The language should be non-technical. If the report is loaded with technical
terminology, it will reduce its utility because the reader may be unfamiliar with
that language. The reader should be able to understand the report without any
difficulty. The report should also be readable.

ANIL KUMAR. ASST. PROFESSOR. VIDYAVAHINI FIRST GRADE COLLAGE. TUMKUR

 B.Com VI Semester – Management Accounting (CBCS) Theory 26

c. Promptness
Promptness in submitting a report is an essential element of a good report. The
reports should be sent at the earliest. These are required for studying the progress
and performance of various departments. A considerable delay in the occurrence of
an event and reporting of the same will defeat the purpose of reporting.

d. Relevancy
The reports should be presented only to the persons who need them. They should be
marked to relevant officials. Sometimes reports are sent to various departments in a
routing way, then it will involve unnecessary expenditure and the reports will not
remain secret.

e. Consistency
There should be a consistency in the preparation of reports. The comparability of
reports will be possible only if they are consistent. For consistency, the reports
should be prepared from the same type of information and statistical data.

f. Accuracy
The reports should be reasonably accurate. Statistical reports may sometimes be
approximated to make them easily understandable. The production of figures
accurate up to paisa may be difficult to be remembered, their reasonable
approximation may make them readable and understandable.

g. Controllability
The reports should be addressed to appropriate persons in respective responsibility
centres. The reports should give details of variances, which are related to that
centre. This will help in taking corrective measures of appropriate levels. The
variances which are not controllable at a particular responsibility centre may also be
mentioned separately in the report.

ANIL KUMAR. ASST. PROFESSOR. VIDYAVAHINI FIRST GRADE COLLAGE. TUMKUR

 B.Com VI Semester – Management Accounting (CBCS) Theory 27

10. Explain different types of reports.

 Formal report: A formal report consists of many pages, which are usually
written by a third person, and contains several sections or chapters by
utilizing graphic aids.

 Informal reports: Informal reports do not have any set standards and have
no prescribed procedure to write the report. Confidential reports will be in
the informal forms.

 Special report: Special reports are submitted by enquiry officer after an

enquiry of a special nature has been conducted. Such reports will contain the
information relating to specific issues to by the people who have instituted
an enquiry.

 Routine report: These reports are prepared about day-to-day working of the
concerns. They are periodically sent to various levels of management. this
report is known as routine report.

 Statutory report: Statutory reports are the reports prepared in accordance

with the provisions of law, annual reports, director’s report, auditor’s report
are the examples of statutory report.

 Investigative reports: These reports are linked with control reports. In case
some serious problem arises then the causes of this situation are studied
and analysed.

 Financial reports: These reports provide information about the financial

position of the concern on specific dates or movement of finances during a
specific period.

ANIL KUMAR. ASST. PROFESSOR. VIDYAVAHINI FIRST GRADE COLLAGE. TUMKUR

 B.Com VI Semester – Management Accounting (CBCS) Theory 28

Mamatha Ltd. is facing shortage of working capital. Draft a report to the top management
stating the reasons for shortage and suggest the sources of securing the working capital.
Date: 05-09-2020
From
The Management Accountant
Mamatha Ltd., Company
Tumakuru – 572102
To
The Management
Mamatha Ltd., Company
Tumakuru – 572102

Respected sir,
Sub: Report for the reasons for shortage of working capital & suggestions

The company is facing shortage of working capital because of the following reasons
which we have arrived after investigation:
a. Excessive investments in fixed assets
b. No proper effective debt collection measures
c. Mismanagement of short-term sources of fund
d. No proper selection of short term sources of funds
To overcome the above causes for declining in working capital, I would like to give
following suggestions:
a. Investment in the current assets and fixed assets should be well balanced
b. Debt collection should be in time and it collection policy should be effective
c. Short-term sources of funds should be properly and effectively used
d. There should be proper selection in the sources of securing working capital.

Yours faithfully

Management Accountant
Manasa Ltd. is facing Problem of raw materials. As a management accountant Draft a

ANIL KUMAR. ASST. PROFESSOR. VIDYAVAHINI FIRST GRADE COLLAGE. TUMKUR

 B.Com VI Semester – Management Accounting (CBCS) Theory 29

report suggesting reformulation of purchase policy to have uninterrupted supply of raw

materials.
Date: 05-09-2020
From
The Management Accountant
Manasa Ltd., Company
Tumakuru – 572102
To
The Management
Manasa Ltd., Company
Tumakuru – 572102

Respected sir,
Sub: Report for reformulation of purchase policy
As a basic input, raw materials are very essential for production, any short supply of
raw materials will seriously affect the production. Due to which the company is facing
the following problems:
a. The authority of purchase decision is not delegated properly to the purchase
manager.
b. The company is not properly maintaining re-order quantity level.
c. Finance policy is not favourable towards purchase policy.
d. The suppliers are situated very for away from company.
Suggestions to improvement of present situation:
a. Authority should be properly delegated to the purchase manager to take
decision.
b. It is necessary to fix proper re-order level
c. Finance policy should be liberalized towards purchase policy
d. It is necessary to search for local suppliers who are very near and who can
supply quality of raw materials at reasonable rates.
Yours faithfully
Management Accountant

ANIL KUMAR. ASST. PROFESSOR. VIDYAVAHINI FIRST GRADE COLLAGE. TUMKUR