Accounting for managers -mba-1 semester

Question bank -aprill-2024

Module-1
Section a

1. What are the golden rules of accounts?

The golden rules of accounts are principles that govern the recording of financial transactions: (a) personal account: debit the receiver,
credit the giver. (b) real account: debit what comes in, credit what goes out. (c) nominal account: debit all expenses and losses, credit
all incomes and gains.

2. What is book keeping?

Bookkeeping is the systematic recording, organizing, and storing of financial transactions of a business in a structured manner.

3. What is journal?
A journal is the first step in the accounting process where all financial transactions are recorded in chronological order.

4. What is ledger?
A ledger is a principal book where similar transactions relating to a particular account are recorded.

5. What is trial balance?

trial balance is a statement that lists all the ledger accounts with their debit or credit balances to ensure that the total debits equal total
credits.

6. what is non-trading concern?

A non-trading concern is an organization that does not engage in buying or selling goods for profit, such as charitable institutions or
clubs.

7. What is revenue receipt?

revenue receipt refers to income earned by a business through its regular operations, like sales revenue or service fees.

8. what is capital receipt?

Capital receipt refers to funds received by a company from non-operating activities, such as selling assets or taking loans.

9. Define “double entry system of book keeping”?

the double-entry system of bookkeeping is a method where every transaction is recorded with equal debits and credits to maintain the
balance of the accounting equation: assets = liabilities + equity.

10. What is revenue expenditure?

Revenue expenditure is the cost of expenses incurred in the day-to-day operations of a business, such as salaries, utilities, and rent.

11. What is capital expenditure?

capital expenditure is the expenditure incurred to acquire or improve long-term assets, like purchasing machinery or building a new facility.

12. Define “depreciation”

depreciation is the systematic allocation of the cost of a tangible asset over its useful life to reflect its consumption, wear and tear, or
obsolescence.

13. Define accounting concept

Accounting concept refers to the basic assumptions, principles, and rules that guide the preparation and presentation of financial statements.

14. Define accounting convention

Accounting convention refers to the accepted practices and customs followed by accountants while preparing financial statements.

15. Explain accounting cycle

the accounting cycle is the sequence of steps followed in the accounting process, including analyzing transactions, journalizing, posting to
ledgers, preparing trial balance, adjusting entries, preparing financial statements, and closing the books.

Section b
1. What are the objectives of double entry system of book keeping?
the objectives of the double-entry system of bookkeeping are to maintain accuracy in recording financial transactions, ensure the
integrity of financial statements, facilitate the detection and correction of errors, and provide a clear picture of a company’s financial
position.

2. Discuss the objectives of book-keeping

the objectives of bookkeeping include recording financial transactions accurately, maintaining systematic records of business
activities, providing a basis for preparing financial statements, facilitating decision-making, and ensuring compliance with legal and
regulatory requirements.

3. Define the objectives of accounting

The objectives of accounting include providing relevant financial information to stakeholders for decision-making, ensuring the
accountability of management, facilitating effective resource allocation, assessing the financial performance of the business, and
complying with legal and regulatory requirements.

4. Distinguish between the revenue expenditure and capital expenditure

Revenue expenditure is incurred for day-to-day operations and is expensed immediately, contributing to the generation of revenue in
the current period.
capital expenditure, on the other hand, is incurred to acquire or improve long-term assets and is capitalized, meaning it is recorded as
an asset and depreciated over time.

5. Difference between the revenue receipts and capital receipts?

revenue receipts are income earned from the normal operating activities of a business, such as sales revenue or service fees.
Capital receipts, however, are funds received from non-operating activities, such as selling assets or obtaining loans.

6. What are the differences between the receipts and payments account and income and expenditure account
receipts and payments account is a summary of cash transactions during a period, focusing on actual cash inflows and outflows.
Income and expenditure account, on the other hand, is an accrual-based statement that records revenue earned and expenses incurred
regardless of whether cash has been received or paid.

7. what are the different types of cash book maintaining in a business entity?
different types of cash books maintained in a business entity include: single-column cash book, double-column cash book, triple-
column cash book, and petty cash book.

8. What is the basic of accounting cycle?

The basic accounting cycle involves the sequential process of analyzing transactions, journalizing, posting to ledgers, preparing trial
balance, adjusting entries, preparing financial statements, and closing the books.

9. What is balance sheet?

A balance sheet is a financial statement that provides a snapshot of a company’s financial position at a specific point in time, showing
its assets, liabilities, and shareholders’ equity.

10. Discuss the objectives of preparing balance sheet.

The objectives of preparing a balance sheet include presenting a clear picture of a company’s financial position, providing information
about its assets and liabilities, assessing its liquidity and solvency, facilitating comparisons over time and with other companies, and
aiding in decision-making by stakeholders.

Section c

1. Discuss the different methods of depreciation

different methods of depreciation:

There are several methods for calculating depreciation, each with its own advantages and disadvantages. Here’s a breakdown of
some common methods:

Straight-line method: this is the simplest and most common method. It spreads the cost of the asset evenly over its useful life.
Depreciation expense remains constant throughout the life of the asset.

Declining balance method: this method accelerates depreciation in the early years of the asset’s life. A higher depreciation rate is
applied to the remaining book value each year.

Sum-of-the-years’-digits method (syd): this method also accelerates depreciation compared to straight-line, but to a lesser extent
than double-declining balance. It assigns a higher weighting to the early years of the asset’s life.
 Units-of-production method: this method bases depreciation on the asset’s usage level rather than time. Depreciation expense is
calculated based on the number of units produced compared to the asset’s total expected output.

Choosing the right method depends on the asset type, its expected usage pattern, and the company's tax strategy.

Module 2

Section a
1.define accounting standards
accounting standards are rules and guidelines established by accounting authorities to ensure uniformity, consistency, and
transparency in financial reporting.

2. What is ifsr?
ifrs stands for international financial reporting standards, which are a set of accounting standards developed by the
international accounting standards board (iasb) to provide a common global language for business affairs.

3. What do you mean by gaap?

gaap stands for generally accepted accounting principles, which are a set of accounting standards, principles, and procedures
that companies use to compile their financial statements in accordance with the requirements of regulatory bodies.

4. Explain the accounting standard deal with the issues?

accounting standards deal with various issues such as recognition, measurement, presentation, and disclosure of financial
transactions and events to ensure consistency and comparability in financial reporting.

5. Explain the features of ind-as

the features of ind-as (indian accounting standards) include convergence with ifrs, focus on fair value accounting, increased
disclosure requirements, and improved transparency and comparability of financial statements.

6. What is asb?
asb stands for accounting standards board, which is a body responsible for formulating and issuing accounting standards in a
particular jurisdiction.

7. What is icai?
icai stands for the institute of chartered accountants of india, which is a statutory body established under an act of parliament
responsible for regulating the profession of chartered accountancy in india.

8. What is mca?
mca stands for ministry of corporate affairs, which is a government ministry in india responsible for regulating corporate
affairs and administering the companies act.

9. What is nfra?
nfra stands for national financial reporting authority, which is an independent regulatory authority established to oversee
compliance with accounting and auditing standards in india.

10. Explain the meaning of disclosure?

disclosure refers to the presentation of information in the financial statements and accompanying notes to provide users with
a clear understanding of the financial position, performance, and risks of an entity.

11. What is borrowing costs?

borrowing costs are the interest and other costs incurred by an entity in connection with borrowing funds to finance the
acquisition, construction, or production of qualifying assets.

12. What is segment reporting?

segment reporting involves disclosing financial information about the different operating segments of a business to provide
users with insights into the risks and returns associated with each segment.

13. What is related party disclosures?

related party disclosures require entities to disclose transactions, relationships, and arrangements with related parties, such as
affiliates, subsidiaries, and key management personnel, to ensure transparency and prevent conflicts of interest.

14. What do you mean by leases?

 leases are contractual agreements between a lessor (owner) and a lessee (user) whereby the lessor grants the lessee the right
to use an asset for a specified period in exchange for rental payments.

15. What is eps?

eps stands for earnings per share, which is a financial metric calculated by dividing a company's net earnings by the average
number of outstanding shares to measure the profitability of a company on a per-share basis.

16. What is intangible asset?

intangible assets are non-physical assets with no intrinsic value, such as patents, trademarks, copyrights, goodwill, and
intellectual property rights, which contribute to the future economic benefits of an entity.

17. What is impairment of assets?

impairment of assets occurs when the carrying amount of an asset exceeds its recoverable amount, leading to a decrease in
the asset's value on the balance sheet and necessitating an impairment loss to be recognized in the financial statements.

18. What are contingent liabilities?

contingent liabilities are potential obligations that may arise from past events and whose existence depends on the occurrence
or non-occurrence of future events, such as lawsuits, warranties, and guarantees.

19. What is contingent assets?

contingent assets are potential assets that may arise from past events and whose existence depends on the occurrence or non-
occurrence of future events, such as legal settlements or insurance claims.

20. What are employee benefits?

employee benefits are non-monetary compensation provided to employees in addition to their regular salary or wages,
including pensions, healthcare plans, stock options, and paid time off.

Section b

1. What are the objectives of accounting?

the objectives of accounting include providing relevant financial information to stakeholders for decision-making, ensuring the
accountability of management, facilitating effective resource allocation, assessing the financial performance of the business, and
complying with legal and regulatory requirements.

2. What are the advantages of setting accounting standards?

the advantages of setting accounting standards include promoting consistency and comparability in financial reporting, enhancing
transparency and reliability of financial information, facilitating cross-border investment and trade, improving investor confidence,
and reducing the risk of financial fraud and manipulation.

3. Discuss the limitations of accounting standards?

limitations of accounting standards include the complexity of business transactions, the inability to capture all economic events
accurately, the potential for manipulation by management, the lag in updating standards to reflect changing business practices, and the
challenge of enforcing compliance across diverse industries and jurisdictions.

4. Discuss accounting standards in indian context

in the indian context, accounting standards are issued by the accounting standards board (asb) under the regulatory oversight of the
institute of chartered accountants of india (icai). These standards aim to ensure consistency, transparency, and reliability in financial
reporting by indian companies.

5. Discuss the scope and functions of accounting of standard boards

the scope and functions of accounting standard boards involve developing, issuing, and maintaining accounting standards,
interpreting and clarifying standards, conducting research and consultations on emerging issues, collaborating with international
standard-setting bodies, and promoting adherence to standards through education and enforcement.

6. Discuss the need for accounting

 the need for accounting standards arises from the complexity of modern business transactions, the diversity of accounting practices
across industries and countries, the need for comparability and consistency in financial reporting, the demand for transparent and
reliable information by stakeholders, and the requirements of regulatory authorities.

7. Discuss the salient features of ifrs

salient features of ifrs (international financial reporting standards) include global applicability, principles-based approach, focus on
fair value accounting, increased disclosure requirements, convergence with national accounting standards, and adaptability to evolving
business practices and economic environments.

8. What are the advantages of adopting ind-as?

the advantages of adopting ind-as (indian accounting standards) include convergence with global accounting standards (ifrs),
improved transparency and comparability of financial statements, enhanced investor confidence, facilitation of cross-border
investment and trade, and alignment with international best practices.

9. Discuss first time adaption of ifrs

the first-time adoption of ifrs involves the transition from national accounting standards to ifrs, which requires careful planning,
preparation, and disclosure of the impact on financial statements. It involves assessing the differences between the two sets of
standards, making necessary adjustments, and providing comprehensive disclosures to stakeholders.

10. Meaning of convergence with ifrs

convergence with ifrs refers to the process of aligning national accounting standards with international accounting standards (ifrs)
to achieve consistency, comparability, and transparency in financial reporting across borders.

Section c

1. Discuss the procedure for issuing a/c standards by accounting standard board of institute of chartered accounting of india
the accounting standards board (asb) of the institute of chartered accountants of india (icai) follows a structured process for issuing
accounting standards. This typically involves research, consultation with stakeholders, drafting, exposure draft issuance for public
comments, review of comments, finalization, and issuance.

2. List out the accounting standards in india

accounting standards in india include as 1 to as 32, covering various aspects of financial reporting such as presentation of financial
statements, inventory valuation, revenue recognition, and more.

3. Discuss the challenges of adopting ifrs

challenges of adopting ifrs include complexities in transitioning from existing standards, differences in accounting treatments,
training requirements for professionals, and potential impact on financial statements and business operations.

4. List of ind-as international accounting standards (ias)

ind-as corresponds to international accounting standards (ias). Some ind-as aligned with ias include ind-as 1 (ias 1: presentation of
financial statements), ind-as 16 (ias 16: property, plant, and equipment), and ind-as 109 (ias 39: financial instruments: recognition and
measurement).

5. Disclosure of interest in other entities

disclosure of interest in other entities typically involves revealing investments, ownership stakes, or financial interests in other
companies or entities in financial statements or notes to financial statements.
6. Discuss the role and importance of international accounting standard (ind-as) in financial reporting
international accounting standards (ind-as) play a crucial role in financial reporting by aligning indian accounting practices with
global standards, enhancing comparability, transparency, and reliability of financial information.

7. Process of convergence in india

the convergence process in india involves gradually aligning indian accounting standards (ind-as) with international financial
reporting standards (ifrs) to enhance global compatibility and facilitate cross-border investments and comparisons.

8. Government of india role towards ind-as

the government of india plays a significant role in the adoption and implementation of ind-as by mandating certain companies to
follow these standards, providing regulatory oversight, and supporting the convergence process.

9. List of ind-as corresponding to ifrs and ias

nsome ind-as corresponding to ifrs and ias include ind-as 1 (ifrs 1: first-time adoption of international financial reporting
standards), ind-as 16 (ias 16: property, plant, and equipment), and ind-as 109 (ias 39: financial instruments: recognition and
measurement).

10. Discuss disclosures of accounting policies and fundamental accounting assumptions with reference to ind as-1
ind as 1 requires entities to disclose their accounting policies, including fundamental accounting assumptions such as accrual basis,
going concern, and consistency. These disclosures ensure transparency and help users understand the basis on which financial
statements are prepared.

11. Discuss the different methods of valuation of inventories as per ind-as 2

ind-as 2 allows different methods for valuing inventories, including the first-in, first-out (fifo) method, weighted average cost
method, and specific identification method. Entities choose the method that best reflects the flow of costs and the nature of their
inventories.

12. Discuss the measurement of inventories as per ind_as 2

the measurement of inventories under ind-as 2 involves recognizing them at the lower of cost and net realizable value. Cost
includes all costs incurred to bring the inventories to their present location and condition, while net realizable value is the estimated
selling price less estimated costs to complete and sell.

13. Discuss the contingencies and events occurring after the balance sheet date as per ind as 4
ind as 4 addresses contingencies and events occurring after the balance sheet date. Contingencies are disclosed in the financial
statements if they represent material uncertainties, while events occurring after the balance sheet date may require adjustments to the
financial statements if they provide additional evidence of conditions existing at the end of the reporting period.

14. Discuss the prior period items and changes in accounting policies as ias 5
ias 5 deals with prior period items and changes in accounting policies. Prior period items are material errors or omissions from
previous financial statements, while changes in accounting policies are adjustments made to improve the relevance and reliability of
financial information.

15. Discuss the revenue recognition as per ind as 9

ind as 9 outlines the criteria for revenue recognition, emphasizing the transfer of risks and rewards, the stage of completion of the
transaction, and the certainty of economic benefits flowing to the entity. Revenue is recognized when it is probable that the economic
benefits will flow to the entity and the amount can be reliably measured.
16. Discuss ppr (property plant and equipment accounting treatment as per ind as -10
ind as 16 provides guidance on the accounting treatment of property, plant, and equipment (ppe). Ppe is initially measured at cost,
which includes all directly attributable costs necessary to bring the asset to its working condition. Subsequently, ppe is measured at
cost less accumulated depreciation and impairment losses.

17. Discuss the accounting for investment with reference to ind as 13

ind as 13 addresses the accounting for investments, including investments in subsidiaries, associates, and joint ventures.
Investments are initially recognized at cost and subsequently measured at cost or fair value, depending on the classification of the
investment and the accounting policy of the entity.

Module 3
Section a

1. What is shareholder fund?

Shareholder fund refers to the equity portion of a company’s balance sheet, representing the owners’ residual interest in the company’s
assets after deducting liabilities. It includes share capital, retained earnings, and other reserves.

2. What are the non-current liabilities?

Non-current liabilities are obligations that are not due for settlement within the normal operating cycle of the business or within one
year from the balance sheet date. Examples include long-term loans, bonds payable, and deferred tax liabilities.

3. What are the current liabilities?

Current liabilities are obligations that are expected to be settled within the normal operating cycle of the business or within one year
from the balance sheet date. Examples include accounts payable, short-term loans, and accrued expenses.

4. What are the other current liabilities

Other current liabilities include short-term obligations that do not fit into standard categories of current liabilities, such as dividends
payable, customer deposits, and provision for warranties.

5. What are the non-current assets?

Non-current assets are assets that are not expected to be converted into cash or consumed within the normal operating cycle of the
business or within one year from the balance sheet date. Examples include property, plant, equipment, and long-term investments.

6. What are the current assets?

Current assets are assets that are expected to be converted into cash or consumed within the normal operating cycle of the business or
within one year from the balance sheet date. Examples include cash, accounts receivable, and inventory.

7. What is long term provision?

Long-term provisions are liabilities that are expected to be settled beyond one year from the balance sheet date, such as provision for
employee benefits, restructuring costs, and environmental liabilities.

8. What is short term borrowings?

Short-term borrowings are liabilities that are due for repayment within one year from the balance sheet date, such as bank overdrafts,
short-term loans, and commercial paper.
9. What are the tangible assets?
Tangible assets are physical assets with a physical form and substance, such as land, buildings, machinery, and vehicles.

10. what are the intangible assets?

Intangible assets are non-physical assets that lack physical substance but have economic value, such as patents, trademarks,
copyrights, and goodwill.

11. Explain non-current investments

Non-current investments are long-term investments made by a company in securities, properties, or other entities with the intention of
holding them for an extended period, typically exceeding one year.

12. what are the long-term loans and advances?

Long-term loans and advances are funds provided by a company to other entities or individuals with the expectation of repayment
over an extended period, typically exceeding one year.

13. explain inventories

Inventories are assets held by a company for sale in the ordinary course of business, including raw materials, work-in-progress, and
finished goods.

14. what are trade receivables?

Trade receivables are amounts owed to a company by its customers as a result of credit sales of goods or services on trade credit
terms.

15. what is cash and cash equivalents?

Cash and cash equivalents are highly liquid assets that can be readily converted into cash within three months or less, such as cash on
hand, bank balances, and short-term investments with high liquidity.

Section b

1. What do you mean by contingent liabilities and commitments (to the extent not provided for)?
Contingent liabilities and commitments (to the extent not provided for) refer to potential obligations or promises that may arise in the
future depending on the outcome of uncertain events. These obligations are not recognized as liabilities on the balance sheet but are
disclosed in the financial statements to inform stakeholders about possible future financial impacts.

2. Explain the meaning of companies

Companies are legal entities formed under the laws of a particular jurisdiction for the purpose of carrying out business activities. They
have separate legal status from their owners, allowing them to enter into contracts, own assets, and incur liabilities in their own name.

3. What is foreign company?

A foreign company is a company incorporated in a country other than the one where it conducts its primary business operations. It
may establish operations, subsidiaries, or branches in foreign countries to expand its business internationally.

4. What is government company?

 A government company is a company in which the government holds a majority stake, either directly or indirectly through
government agencies or entities. These companies are established to undertake commercial activities on behalf of the government and
may operate in various sectors such as infrastructure, finance, and utilities.

5. What is public company?

A public company, also known as a publicly traded company, is a company whose shares are traded on a public stock exchange. These
companies can raise capital by selling shares to the public and are subject to regulatory requirements for financial reporting and
corporate governance.

6. What is unlimited company?

An unlimited company is a type of company where the liability of its members or shareholders is not limited. In the event of the
company’s insolvency, the personal assets of the members can be used to settle the company’s debts and obligations.

7. What is unlimited company?

A holding company is a company that owns a controlling interest in one or more other companies, known as subsidiaries. It typically
does not engage in the day-to-day operations of its subsidiaries but exercises control through ownership of their voting shares.

8. What is subsidiary company?

A subsidiary company is a company that is controlled by another company, known as the parent company or holding company. The
parent company holds a majority of the voting rights or has the power to appoint the majority of the subsidiary’s board of directors.

9. Definition and significance of cash flow statement

A cash flow statement is a financial statement that provides information about the cash inflows and outflows of a company during a
specific period. It helps stakeholders understand how a company generates and uses cash and assesses its ability to meet its financial
obligations and pursue its operating, investing, and financing activities.

10. Define operating activity and its uses.

Operating activities include the primary business activities of a company, such as sales of goods and services, payments to suppliers,
and receipts from customers. The cash flow from operating activities measures the cash generated or used in the company’s core
operations and is a key indicator of its financial performance and liquidity.

11. Define investing activity and its uses.

Investing activities involve the purchase and sale of long-term assets, such as property, plant, equipment, and investments in securities.
The cash flow from investing activities reflects the cash used for investing in or disposing of these assets and helps assess the
company’s investment decisions and capital allocation strategies.

12. Define financing activity and its uses.

Financing activities involve raising capital and repaying borrowings, such as issuing or repurchasing shares, obtaining or repaying
loans, and paying dividends to shareholders. The cash flow from financing activities indicates the company’s ability to finance its
operations and investments through external sources and its commitment to returning value to shareholders.

Section c

1. . What is the classification of cash flow activities? Discuss

Cash flow activities are classified into three categories: operating activities, investing activities, and financing activities. This
classification helps users of financial statements understand the sources and uses of cash within an entity.
2. Discuss cash flows arising from operating activities
Cash flows arising from operating activities include cash receipts and payments related to the principal revenue-producing activities of
the entity. This typically includes cash received from customers, cash paid to suppliers and employees, and interest received on loans.

3. Discuss cash flows arising from investing activities

Cash flows arising from investing activities involve the acquisition and disposal of long-term assets and other investments not
classified as cash equivalents. Examples include cash paid for the purchase of property, plant, and equipment, cash received from the
sale of investments, and loans made to other entities.

4. Discuss cash flows arising from financing activities

Cash flows arising from financing activities reflect changes in the equity and borrowings of the entity. This includes cash received
from issuing shares or borrowing funds (e.g., loans and bonds) and cash paid for dividends, repayment of borrowings, or repurchase of
shares.

5. Enterprises can determine cash flows from operating activities

What are the methods an enterprise can determine cash flows from operating activities?
using two methods: the direct method and the indirect method. The direct method involves reporting major classes of gross cash
receipts and payments from operating activities, while the indirect method starts with net income and adjusts for non-cash items and
changes in working capital to arrive at cash flows from operating activities.

6. Discuss the statutory books to be maintained by a company under different sections of the companies act 2013
Statutory books to be maintained by a company under different sections of the companies act 2013 include the register of members,
register of directors and key managerial personnel, register of charges, minute books of general meetings and board meetings, and the
register of investments.

7. Discuss financial statements as per section 2(40) of the companies act 2013
Financial statements as per section 2(40) of the companies act 2013 include the balance sheet, profit and loss account, cash flow
statement (if applicable), statement of changes in equity (if applicable), and any explanatory notes.

8. Discuss the points to be kept in mind while preparing final accounts

Points to be kept in mind while preparing final accounts include ensuring accuracy, completeness, adherence to accounting standards,
consistency with prior periods, proper disclosure of information, and compliance with legal requirements.

9. Discuss the points to be kept in mind while preparing final accounts

The components of financial statements typically include the balance sheet (statement of financial position), income statement (profit
and loss account), cash flow statement, statement of changes in equity, and notes to the financial statements.

10. Discuss the objectives and users of financial statements

The objectives of financial statements are to provide information about the financial position, performance, and changes in financial
position of an entity. Users of financial statements include investors, creditors, management, employees, regulators, and other
stakeholders interested in the entity’s financial performance.

11. Discuss fundamental accounting assumptions

Fundamental accounting assumptions include the going concern assumption (entity will continue operating in the foreseeable future),
accrual basis assumption (transactions are recorded when they occur, not when cash is received or paid), and consistency assumption
(consistent application of accounting policies).

12. Discuss the qualitative characteristics of financial statements

Qualitative characteristics of financial statements include relevance (information is capable of influencing decisions), reliability
(information is free from material error and bias), comparability (information is comparable across different periods and entities), and
understandability (information is presented clearly and concisely).

13. . Discuss the elements of financial statements

The elements of financial statements include assets (resources controlled by the entity), liabilities (obligations to transfer resources),
equity (residual interest in the assets after deducting liabilities), income (increases in economic benefits), and expenses (decreases in
economic benefits).
14. Discuss the measurements of financial statements
Measurements of financial statements involve assigning monetary amounts to the elements of financial statements using various
measurement bases such as historical cost, fair value, and net realizable value, depending on the nature of the asset or liability.

15. Discuss the difference between operating, investing and financial activities
Operating activities involve cash flows related to the principal revenue-producing activities of the entity, investing activities involve
cash flows related to the acquisition and disposal of long-term assets and investments, and financing activities involve cash flows
related to changes in equity and borrowings of the entity.

Module 4

Section a

1. Meaning of financial statements analysis

Financial statement analysis refers to the process of evaluating and interpreting a company’s financial statements to assess its financial
performance, profitability, solvency, and liquidity.

2. What is the purpose of financial statement analysis?

The purpose of financial statement analysis is to provide insights into a company’s financial health, profitability, efficiency, and risk
profile. It helps stakeholders, including investors, creditors, management, and regulators, make informed decisions about investing,
lending, operating, and regulating the company.

3. Explain techniques of financial statement analysis

Techniques of financial statement analysis include horizontal analysis (comparing financial data over time), vertical analysis
(comparing financial data within a single period), ratio analysis (analyzing relationships between different financial variables), trend
analysis (identifying patterns and trends in financial data), and common-size analysis (expressing financial data as a percentage of a
base figure).

4. Define the ratio analysis

Ratio analysis is a technique used to evaluate the financial performance and position of a company by analyzing relationships between
various financial variables, such as liquidity, profitability, solvency, and efficiency, using mathematical ratios.

5. What is current ratio

The current ratio is a liquidity ratio that measures the company’s ability to meet its short-term obligations using its current assets. It is
calculated by dividing current assets by current liabilities.

6. What is liquid ratio?

The liquid ratio, also known as the quick ratio or acid-test ratio, is a liquidity ratio that measures the company’s ability to meet its
short-term obligations using its most liquid assets. It is calculated by dividing liquid assets (such as cash, marketable securities, and
accounts receivable) by current liabilities.

7. What is debt to equity ratio?

The debt to equity ratio is a solvency ratio that measures the proportion of a company’s financing that comes from debt compared to
equity. It is calculated by dividing total debt by total equity.

8. What is proprietary ratio?

The proprietary ratio, also known as the equity ratio or net worth to total assets ratio, is a solvency ratio that measures the proportion
of a company’s total assets financed by its shareholders’ equity. It is calculated by dividing shareholders’ equity by total assets.
9. What is interest coverage ratio?
The interest coverage ratio, also known as the times interest earned ratio, is a profitability ratio that measures the company’s ability to
cover its interest expenses with its operating income. It is calculated by dividing earnings before interest and taxes (ebit) by interest
expenses.

10. What is inventory turnover ratio?

The inventory turnover ratio is an efficiency ratio that measures how efficiently a company manages its inventory by assessing how
many times it sells and replaces its inventory during a period. It is calculated by dividing the cost of goods sold by average inventory.

11. What is gross profit ratio?

The gross profit ratio, also known as the gross margin ratio, is a profitability ratio that measures the proportion of revenue that exceeds
the cost of goods sold. It is calculated by dividing gross profit by revenue and is expressed as a percentage.

12. What is net profit ratio?

The net profit ratio, also known as the net margin ratio, is a profitability ratio that measures the proportion of revenue that remains as
net profit after deducting all expenses, including operating expenses, interest, and taxes. It is calculated by dividing net profit by
revenue and is expressed as a percentage.

Section b

1. What is total assets to debt ratio?

The total assets to debt ratio is a solvency ratio that measures the proportion of a company’s total assets financed by its
debt. It is calculated by dividing total assets by total debt.

2. What is the purpose of preparation of comparative and common size statements?

The purpose of preparation of comparative and common size statements is to provide insights into trends and relationships
within a company’s financial data. Comparative statements compare financial data over multiple periods, while common
size statements express financial data as percentages of a base figure, allowing for easier comparison across companies or
periods.

3. What are the classifications of ratios?

Ratios can be classified into various categories based on their purpose and the financial variables they analyze. Common
classifications include liquidity ratios, profitability ratios, solvency ratios, efficiency ratios, and market value ratios.

4. Discuss the objectives of ratio analysis

The objectives of ratio analysis include assessing a company’s financial performance, profitability, liquidity, solvency,
efficiency, and market valuation. It helps stakeholders identify trends, compare performance against industry benchmarks,
evaluate management effectiveness, and make informed decisions about investing or lending.

5. What are the limitations of ratios?

Limitations of ratios include the reliance on historical data, the potential for manipulation, variations in accounting
methods, differences in industry norms, the lack of context, and the inability to capture qualitative factors or future
prospects.

6. What is eps? Discuss

Eps stands for earnings per share, which is a financial metric calculated by dividing a company’s net earnings attributable
to common shareholders by the average number of outstanding shares during a specific period. It indicates the portion of a
company’s profit allocated to each outstanding share of its common stock.

7. What is roi? Discuss

Roi stands for return on investment, which is a profitability ratio that measures the efficiency of an investment or the
profitability of a company’s investments. It is calculated by dividing the net profit or gain from an investment by the initial
investment cost and expressing the result as a percentage.
8. What are the solvency ratios?
Solvency ratios assess a company’s ability to meet its long-term financial obligations and remain solvent. Common
solvency ratios include debt to equity ratio, total debt ratio, interest coverage ratio, and proprietary ratio.

9. Discuss the proprietor’s fund/ shareholders fund /net worth

Proprietor’s fund, also known as shareholders’ fund or net worth, represents the total equity of a company, including share
capital, reserves, and retained earnings. It indicates the portion of a company’s assets that belong to its owners, after
deducting liabilities.

10. Discuss the capital employed

Capital employed refers to the total amount of capital invested in a company’s operations, including long-term debt,
shareholders’ equity, and reserves. It represents the funds used to finance the company’s assets and operations, and it is a
measure of the long-term financial stability and productivity of the company.

Module 5
Section a

1. What is cost accounting?

Cost accounting is a branch of accounting that focuses on the recording, analysis, and control of costs incurred by a
business. It involves the classification, allocation, and interpretation of costs to facilitate decision-making, cost control, and
performance evaluation.

2. Define management accounting

Management accounting is the process of identifying, measuring, analyzing, interpreting, and communicating financial
information to help management make informed decisions, formulate strategies, and achieve organizational goals. It
involves the preparation of internal reports and financial analysis tailored to the specific needs of management.

3. Explain the objectives of cost accounting

The objectives of cost accounting include providing information for cost control and cost reduction, facilitating decision-
making by management, assisting in setting selling prices, measuring and improving operational efficiency, and evaluating
the performance of departments, products, and processes.

4. Define standard costing

Standard costing is a cost accounting technique that involves setting predetermined standards or norms for various cost
elements, such as materials, labor, and overheads, and comparing actual costs with these standards to analyze variances and
control costs.

5. Define marginal costing

Marginal costing, also known as variable costing, is a costing technique that segregates fixed costs from variable costs and
presents variable costs as a contribution margin to cover fixed costs and generate profits. It focuses on the contribution
margin of each unit sold and helps in making short-term decisions by considering the incremental costs and revenues.
6. What is profit volume ratios (p/v ratio)?
Profit volume ratio (p/v ratio) is a ratio that shows the relationship between contribution (or margin of safety) and sales
revenue. It indicates the percentage of contribution to sales and helps in analyzing the impact of changes in sales volume
on the profitability of a business.

7. What is margin of safety?

Margin of safety represents the excess of actual or budgeted sales over the breakeven sales volume. It indicates the level of
sales above the breakeven point and provides a buffer against fluctuations in sales volume, helping management assess the
risk of losses.

8. Define the variance

Variance refers to the difference between the actual value and the standard or budgeted value of a variable. In cost
accounting, variances are used to analyze deviations from expected performance and identify the causes of differences to
take corrective actions.

9. What is contribution?
contribution is the excess of sales revenue over variable costs and represents the amount available to cover fixed costs and
generate profits. It is a key concept in marginal costing and helps in assessing the profitability of products, departments, or
divisions.

10 what are the types of variances?

 types of variances include material variances, labor variances, and overhead variances. Material variances arise from differences
in actual and standard material costs or usage. Labor variances result from differences in actual and standard labor costs or hours
worked. Overhead variances arise from differences in actual and standard overhead costs or allocation.

11. Define bep

Break-even point (bep) is the level of sales at which total revenue equals total costs, resulting in zero profit or loss. It
represents the point where a company covers all its fixed and variable costs and starts generating profits.

12what are the types of standard costing?

Types of standard costing include basic standard costing, which uses predetermined standards for materials, labor, and overheads;
direct costing, which focuses only on direct costs; and activity-based costing (abc), which allocates costs based on activities and
resource consumption.

13. Why standard costing is needed?

Standard costing is needed to establish benchmarks for measuring performance, control costs, improve efficiency, set selling prices,
evaluate variances, and facilitate decision-making. It provides a systematic approach to cost management and helps in identifying areas for
cost reduction and improvement.

14. What is the process of standard costing?

The process of standard costing involves setting standard costs for materials, labor, and overheads; recording actual costs; analyzing
variances; identifying the causes of variances; taking corrective actions; and revising standards as needed based on changing
conditions.

15. what are the elements of cost?

The elements of cost include direct materials, direct labor, and overheads. Direct materials are the raw materials directly used in the
production process. Direct labor is the labor directly involved in manufacturing goods or providing services. Overheads are indirect
costs associated with production that cannot be directly traced to specific units of output.

16. What do you mean by prime cost?

Prime cost refers to the sum of direct materials cost and direct labor cost incurred in the production of goods or provision of services.
It represents the basic cost of production before considering overhead costs.

17. What is the scope of cost accounting?

The scope of cost accounting includes cost ascertainment, cost control, cost reduction, cost analysis, decision-making, performance
evaluation, and planning. It covers various aspects of business operations, such as production, marketing, finance, and administration,
and provides valuable information for management to make informed decisions and achieve organizational objectives.

Section b

1. Distinguish between the financial accounting and cost accounting

Financial accounting focuses on recording, summarizing, and reporting financial transactions of a business to external
stakeholders such as investors, creditors, and regulators. It follows generally accepted accounting principles (gaap) and
provides historical financial information for decision-making and compliance purposes. Cost accounting, on the other
hand, focuses on analyzing and controlling costs incurred in the production or provision of goods and services within a
company. It helps management make internal decisions, such as pricing, budgeting, and performance evaluation, by
providing detailed cost information.

2. Discuss the different methods of costing

Different methods of costing include job costing, process costing, activity-based costing (abc), marginal costing, standard
costing, and direct costing. Job costing is used for products or services produced on a customized or individual basis.
Process costing is used for products that are mass-produced in continuous or repetitive processes. Abc costing allocates
costs based on activities and resource consumption. Marginal costing segregates fixed costs from variable costs and
focuses on contribution margin. Standard costing sets predetermined standards for costs and compares actual costs to these
standards.
3. What are the different types of costing?
The different types of costing include job costing, process costing, batch costing, contract costing, operating costing,
service costing, and uniform costing. Job costing is used for customized products or services. Process costing is used for
mass-produced goods. Batch costing is used for groups of identical units produced together. Contract costing is used for
large projects or contracts. Operating costing is used for services provided over time. Service costing is used for services
with distinct cost centers. Uniform costing involves using the same costing system across multiple companies in the same
industry.

4. Discuss the advantages of cost accounting

The advantages of cost accounting include providing detailed cost information for decision-making, facilitating cost
control and cost reduction, improving operational efficiency, optimizing resource allocation, enhancing performance
evaluation, assisting in pricing decisions, and identifying areas for improvement and cost savings.

5. Discuss the characteristics of an ideal costing system

The characteristics of an ideal costing system include accuracy, reliability, relevance, timeliness, flexibility, simplicity,
cost-effectiveness, consistency, compatibility with organizational objectives, and compliance with legal and regulatory
requirements.

6. Discuss the cost classification

Cost classification involves grouping costs into categories based on their nature, behavior, function, or relevance for
decision-making. Common classifications include direct costs vs. Indirect costs, variable costs vs. Fixed costs,
manufacturing costs vs. Non-manufacturing costs, controllable costs vs. Uncontrollable costs, and relevant costs vs.
Irrelevant costs.

07. . Discuss the process of standard costing

The process of standard costing involves setting predetermined standards for materials, labor, and overheads; recording
actual costs; analyzing variances; identifying the causes of variances; taking corrective actions; and revising standards as
needed based on changing conditions.