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Indian Institute of Management Bangalore

Financial Accounting
PGP Core Course Term 1 2015 Sections A and D Three credits
Course Outline
I LEARNING OBJECTIVES
1. Appreciate the information needs of different categories of users of company financial
reports.
2. Understand the significance of accounting principles and the systems and processes
involved in preparing and presenting financial reports.
3. Analyze and interpret financial reports.
At the end of the course, students should:i. be able to analyze business transactions in a systematic manner.
ii. have a comprehensive understanding of the information available in financial reports.
iii. be able to prepare a financial analysis of a company.
II COURSE CONTENTS
Session
1
June 22

2
June 23

Topic
Part I THE BASIC ACCOUNTING MODEL
Accounting, Markets, and Governance
Understanding Business Organizations
What is Accounting
Accounting Information and Economic Decisions
Users of Accounting Information
Financial and Management Accounting
Assumptions Underlying Accounting Measurement
Generally Accepted Accounting Principles and the Accounting Environment
Forms of Business Organization
Accounting, Capital Market and Corporate Governance
The Accounting Equation
Financial Statements
Fields of Accounting Activity
Ethical Issues in Accounting
Read: Chapter 1 of RNS
Assignment: RNS Problems 1A.1, 1B.1, 1B.4; CP BDC 1.1 MoneyCare
Company; IFR 1.1 Jet Airways Limited
Processing Transactions
Accounts
Classification of Commonly Used Accounts
The Double Entry System: Basis of Modern Accounting
Recording Transactions
The Trial Balance
XBRL
1

Read: Chapter 2 of RNS


Assignment: RNS Problems 2A.1, 2A.2, 2B.1, 2B.2; Cases CP BDC 2.1
Kapoor Software; IFR 2.1 Tata Consultancy Services Limited
3
June 29

Measuring Income
Income Measurement
The Adjustment Process: Accrual Accounting
Preparing Financial Statements from the Adjusted Trial Balance
Overview of the Accounting Cycle
Completing the Accounting Cycle
The Work Sheet: The Accountants Invaluable Tool
Using the Work Sheet
Closing Entries
Post-closing Trial Balance
Reversing Entries
Pro Forma Financial Measures
Read: Chapter 3 of RNS
Assignment: RNS Problems 3A.1, 3B.1, 3B.3, 3B.6; 3B.7; Cases CP BDC 3.1
Findomega.com, CP IFR 3.1 Computer Associates, Inc.

4
June 30

Accounting for Merchandising Operations


Income Measurement for a Merchandising Company
Revenue from Sales: Revenue Recognition
Cost of Goods Sold
Operating Expenses
Classified Financial Statements
Read: Chapter 4 of RNS
Assignment: RNS Problems 4A.1, 4B.1, 4B.2, 4B.5; Cases CP BDC 4.1
Platinum Trends, CP IFR 4.1 Biocon Limited

5-6
July 6
July 7

PART II MEASURING AND REPORTING ASSETS, LIABILITIES


AND SHAREHOLDERS EQUITY
Internal Control Systems, Cash, and Receivables
Internal Control Systems
Internal Control for Cash
Cash
Bank Reconciliation
Trade Debtors
Bills Receivable
Special Cases of Revenue Recognition
Factoring
Financial Analysis of Trade Debtors
Read: Chapter 5 of RNS
Assignment: RNS Problems 5A.2, 5A.3, 5B.3, 5B.4, 5B.5; Cases CP IFR 5.1
UBS, CP IFR 5.2 Reebok India

7
July 13

Inventories
Inventory Valuation and Income Measurement
Determining the Physical Inventory
Pricing the Inventory
Estimating Inventory Value
Perpetual Inventory System
Accounting for Manufacturing Costs
Financial Analysis of Inventories
Read: Chapter 6 of RNS
Assignment: RNS Problems 6A.4, 6B.1, 6B.2, 6B.3, 6B.5; Cases CP BDC 6.1
Giridhar Clothing Company, CP IFR 6.1 Nobles Crus

8-9
July 14
July 20

Fixed Assets
Fixed Assets in Perspective
Determining Cost of Acquisition
Accounting for Depreciation
Depreciation Methods
Capital Expenditures and Revenue Expenditures
Depreciation in Income Tax Returns
Disposal of Depreciable Assets
Revaluation of Fixed Assets
Accounting for Natural Resources
Accounting for Intangible Assets
Impairment of Assets
Read: Chapter 7 of RNS
Assignment: RNS Problems 7A.2, 7A.5, 7A.6, 7B.1, 7B.2, 7B.4, 7B.5, 7B.6,
7B7, 7B.8, 7B.9; Case CP BDC 7.1 Bengal Aluminium Company IFR 7.1 Jet
Airways (India) Limited

10-11
July 21
Aug. 3

Investments
Investments in Perspective
Equity and Debt Instruments
Impairment of Financial Assets
Subsidiaries
Consolidated Financial Statements and Business Combination
Joint Ventures
Associates
Investment Property
Read: Chapter 8
Assignment: RNS Problems 8A.1, 8A.5, 8B.1, 8B.3, 8B.4; Case CP BDC 8.1
Flexi Bank IFR 8.2 Unicredit

12-13
Aug. 4
Aug. 10

Liabilities
Liabilities in Perspective
Current Liabilities
Contingent Liabilities
3

Long-term Liabilities
Debentures Payable
Other Long-term Liabilities: Mortgages, Leases, Pensions and Other Postretirement Benefits
Deferred Tax Liability
Off-Balance Sheet Financing
Read: Chapter 9 of RNS
Assignment: RNS Problems 9A.1, 9A.4, 9B.2, 9B.3, 9B.4; Cases CP IFR 9.1
Essar Oil Limited, IFR 9.2 Kingfisher Airlines, IFR 9.3 Lehman Brothers IFR
9.4 Barclays PLC
14
Aug. 11

15-18
Aug. 17
Aug. 18
Aug. 24
Aug. 25

19
Aug. 31

Shareholders Equity
The Corporate Organization
Share Capital
Dividends
Accounting for Share Capital
Preference Share Capital
Reserves
Buy-back of Shares and Treasury Stock
Bonus Shares
Stock-based Compensation
Earnings per Share
Read: Chapter 10 of RNS
Assignment: RNS Problems 10A.1, 10A.4, 10B.1, 10B.4, 10B.5; Case CP IFR
10.1 Housing Development Finance Corporation Limited
PART III ANALYZING AND INTERPRETING FINANCIAL
STATEMENTS
Analyzing Financial Statements: Statement of Profit and Loss and Balance
Sheet
Objectives of Financial Statement Analysis
Sources of Information
Earnings Quality
Techniques of Financial Statement Analysis
Using Financial Ratios
Corporate Disclosure Policy
Efficient Market Hypothesis and Financial Statement Analysis
Read: Chapter 11 of RNS
Assignment: RNS Problems 11A.1, 11A.5, 11B.3, 11B.5; Cases CP IFR 11.1
Reliance Communications, IFR 11.2 Kingfisher Airlines
Analyzing Financial Statements: Cash Flow Statement
Cash Flow Statement in Perspective
Purpose, Uses and Structure of the Cash Flow Statement
Preparing a Cash Flow Statement
Reporting Cash Flows
4

Interpreting the Cash Flow Statement


Read: Chapter 12 of RNS
Assignment: RNS Problems 12A.1, 12A.2, 12A.3, 12B.1, 12B.4, 12B.5; Case
CP IFR 12.1 Kingfisher Airlines
20
Sep. 1

Analyzing Financial Statements: Banks


Understanding Banks
Bank Regulation
Bank Financial Statements
The Drivers of a Banks Performance
Capital Adequacy
Basel Accords
Off-balance Sheet Activities
Review of key ideas discussed in the course.
Read: Chapter 13 of RNS
Assignment: RNS Problems 13A.1, 13B.1, 13B.2, 13B.4; Case CP IFR 13.1
ICICI Bank

III READING MATERIAL


Prescribed Reading:
1. R. Narayanaswamy. 2014. Financial Accounting: A Managerial Perspective, Fifth
edition. New Delhi: PHI Learning Private Limited (RNS for short).
2. 2015 annual report of Hindustan Unilever Limited. The course requires/makes extensive
use of the report including in tests and examinations.
Students must bring their copies of the textbook and the HUL report to every class.
Additional Reading:
The following professional journals contain articles on current topics in accounting: The
Chartered Accountant; Accountancy; Journal of Accountancy.
The following academic journals contain research papers in accounting: Journal of
Accounting and Economics; Journal of Accounting Research; The Accounting Review; The
Review of Accounting Studies; Contemporary Accounting Research.
IV EVALUATION, MARKING, COMPLAINTS AND GRADING


Class participation, 20 per cent.


The instructor will evaluate students on the quality of their engagement with the
course evidenced by their (a) involvement in debates on topical issues, (b)
contribution to case discussions, and (c) response to instructors questions. The cases
are marked CP in the course outline. Additional cases/topics may be included.

Project, 20 per cent.


5

Topic: It may be a study of financial reporting and analysis issue (see Financial
Analysis at the end of each chapter in the book for illustrative topics) or analysis of
the financial statements of two companies from the same industry for a minimum of
five years.
Objective: To test the students ability to critically analyze and interpret accounting
information and present their findings.
Team: A team of five students will complete a project. The team will select the topic.
Report and presentation: The teams will submit a report containing the results of their
study and present a summary of their study in class.
Evaluation criteria:
 Innovation in developing the topic;
 Efficiency in execution;
 Comprehensiveness of data sources;
 Clarity in communication; and
 Overall quality
Proposal due date: July 3, 2015 5 p.m.
Project presentation in class: August 31, 2015 (tentative)
Project report due date: September 2, 2015 5 p.m.
All submissions will be via moodle.

*
*

Test 1, 7.5 per cent.


Coverage: Chapters 1 to 4.
Date: Saturday, July 11, 2015.*
Objective: To test understanding and application of principles at a basic level.
Method: 20 multiple-choice questions and/or short problems.
Duration: One hour.

Mid-term examination, 20 per cent.


Coverage: Chapters 1 to 6.
Date: Monday, July 27, 2015.
Objective: To test understanding and application of principles at an intermediate level.
Method: Detailed problems. No multiple-choice questions.
Duration: Three hours.

Test 2, 7.5 per cent.


Coverage: Chapters 7 to 9.
Date: Saturday, August 22, 2015.*
Objective: To test understanding and application of principles at a basic level.
Method: 20 multiple-choice questions and/or short problems.
Duration: One hour.

End-term examination, 25 per cent.


Coverage: The entire course.
Date: Thursday, September 3, 2015.
Objective: To test understanding of the detailed contents of the annual report.

Time and venue will be announced by the PGP Office.


Time and venue will be announced by the PGP Office.
6

Method: The exam will involve analysis of a company annual report. No multiplechoice questions.
Duration: Three hours.
Tests and exams are closed-book. Only pens, pencils, erasers and calculators are allowed.
Answer-sheets will be marked within one week from the date of the test or examination.
Students will have the opportunity of inspecting their respective answer scripts and the
instructor's model answers at the instructor's office. Students must not remove, copy or
photocopy the answer scripts and the instructor's model answers.
Complaints regarding errors in totalling marks will be accepted, if given in writing
immediately after inspecting the answer script. The instructor will examine the complaint and
revise the marks, if appropriate. There should be no email or other kind of follow-up.
Complaints regarding other matters will not be considered. The instructor is not able to
discuss (in person, over the phone or by e-mail) marking or grading matters.
On the basis of the students total marks in the course, there will be an overall grade and a
grade point. The various components of evaluation will not be graded separately.
V ATTENDANCE
Students attendance is not mandatory and it will not be a consideration in marking or
grading.
VI INSTRUCTOR
R. Narayanaswamy
Office
Student meeting time

 080 2699 3135


 narayan@iimb.ernet.in
A Block 2nd Floor Room # 205
Monday 2.30 to 3.30 p.m.; at other times, depending on
availability.

VII PROBLEM-SOLVING SESSIONS


The instructor will conduct problem-solving sessions every Tuesday from 2.30 to 3.30 p.m.
Attendance is optional.
VIII TUTORIAL SESSIONS
Tutorials help students in solving additional assignment material. The PGP Office will
announce the tutorial schedule. All students are advised to attend the tutorials.
IX WEBSITE
The course is on http://moodle.iimb.ernet.in. Students must register as soon as possible. All
submissions will be via the site. Marks will be posted on the site.