MMPC 04 PDF EBOOK Merged SECURE

SELF GYAN
MMPC 04 IGNOU
ACCOUNTING FOR MANAGERS
TABLE OF
CONTENTS
01 LONG IMP QUESTIONS
02 EXTRA LONG QUESTIONS
03 VERY IMP SHORT NOTES
04 EXTRA SHORT NOTES
Copyright ©
All rights reserved. No part of this
publication may be reproduced, distributed,
or transmitted in any form or by any means,
including photocopying, recording, or other
electronic or mechanical methods, without
the prior written permission of the copy
right holder,
ये book के वल ignou एग्जाम की तैयारी कराने के

लिए जिससे काम से काम समय में जल्दी आप
तैयारी कर सके और अच्छे मार्क्स ला सकते इसमें
सबसे पहले सबसे इम्पोर्टेन्ट question उसके बाद
काम इम्पोर्टेन्ट question को वरीयता से लिया गया
है आपको बुक को सुरु से अच्छे से पढ़ना है। self
gyan
01
SELF GYAN
IInluces very important
questions only
fully focused for exam
Based on syllabus
Minimum preparation maximum
marks
Easy language
Easy to understand
100 percent result
correct solutions
High quality materials in books
only important questions
as a writer.self gyan
SELF GYAN YOUTUBE CHANNEL 9699784305 ORDER IGNOU SOLVED ASSIGNMENTS THIS EBOOK
FOR DEC 2021 EXAM ONLY
MMPC 04 Accounting for Managers

FIRST PRIORITY MOST IMPORTANT QUESTIONS
Q1- Distinguish between operating activities, investing activities and

financing activities? (v v v v v imp) OR Types of activities and cash flow
classification
Ans –
SELF GYAN YOUTUBE CHANNEL FOR IGNOU CLASS 9699784305 ORDER IGNOU SOLVED
ASSIGNMENTS THIS EBOOK FOR DEC 2021 EXAM ONLY
Q2- Explain budgetary control and how to installing a budgetary cantol

system in an organisation? (v v v v v imp)
Ans – No system of planning can be successful without having an effective and efficient system of
control. Budgeting is closely connected with control. The exercise of control in the organisation with
the help of budgets is known as budgetary control.
Q3- Explain Break-evenAnalysis? (v v v v v imp)

Ans – The term 'Break-even Analysis refers to a system of determination of that level of activity
where total cost equals total selling price. However, in the broader sense, it refers to that system of
analysis that determines the probable profit at any level of activity. The relationship between cost of
production, volume of production, profit and sales value is established by break-even analysis. The
analysis is also known as Cost-Volume-Profit analysis.
Q4- Explain the concept of ratio analysis and explain different type of
financial ratio analysis? (v v v v v imp)
Ans – Ratio Analysis: Ratio analysis is an important tool used in the analysis of financial
statements. A ratio is simply the relationship between any two or more things. In the context of
financial statements, when any two or more items of the financial statements are expressed as a
ratio, it is called a financial ratio. We can comment on the performance of a student only when the
marks obtained by him are seen in conjunction with the maximum marks. Similarly, to evaluate the
performance of a firm, say in terms of its profits, just knowing the quantum of profits earned by the
firm is not enough. We can comment on the performance only when the profits are compared with
either the investment made or the sales.
TYPES OF RATIOS
Any business has many stakeholders. Different stakeholders in a business firm want to evaluate the
financial performance of firms from their perspective. Shareholders or the owners want to evaluate
if the business enterprise is profitable and financially strong or not. They want to know if the money
invested by them has grown over the years or has the investment eroded. Short-term creditors and
suppliers of raw materials want to know if the company would be able to repay the short-term
credit, which they have provided. They are therefore interested in knowing about the short-term
liquidity position of the firm
Similarly, lenders of long-term finance are interested in the long-term solvency and profitability of
the firm. Management is interested in the overall performance of the firm. Thus, each stakeholder
wants to examine and evaluate the financial statements from their perspective. Thus, we may
categorise the financial ratios in the following categories:
PROFITABILITY RATIOS
Profit is the surplus of the revenue earned by a firm by selling its products or services over the cost
incurred to produce those products (or render the services). It is imperative for a firm to earn profits
to sustain its operations in the future and reward its shareholders who have invested their funds in
the firm. Creditors would also like to see the firm to whom they have provided funds to make profits
so that the firm is in a position to repay the loan and pay interest as promised. Employees and
workers would want the company to be earning profits so that they receive salary and incentives
regularly and on time. A loss-making firm would not be in a position to pay taxes to the government
either. Hence, it is important to evaluate the profitability position of a firm. There are various
profitability ratios that are usually calculated.
Gross Profit Margin (or Gross Margin) is the ratio of gross profit earned during a year to the sales of
the firm during the same period. This ratio indicates the gross profit earned by the firm on every
rupee of sales; hence is indicative of the efficiency with which the firm produces each unit of output.
Gross profit is defined as the difference between the sales revenue (net of taxes, GST, and sales
return) and the cost of goods sold (COGS).
LIQUIDITY RATIOS
Creditors, in particular, are concerned about the firm’s ability to pay their dues. Therefore, they try
to analyse the liquidity position of the firm with respect to current assets and current liabilities –
that is, to know if the firm’s current assets are adequate to pay–off their current liabilities. This is
assessed by comparing the current assets with the current liabilities. If a firm is unable to meet its
current obligations due to lack of liquidity, it will result in poor creditworthiness, loss of business
reputation, and, in extreme cases, legal actions against the firm. At the same time, a high level of
liquidity would mean that the funds are invested in low-yielding current assets. Therefore, a proper
trade-off must be maintained between too low and too high liquidity in the business. The current
Ratio is the most commonly calculated measure of liquidity. It simply compares the current assets
with the current liabilities of the firm
LEVERAGE RATIOS
Leverage ratios are designed to assess what proportion of Debt and Equity has been employed by
the firm in financing its operations. Debt funds being the funds made available by lenders who
require to be compensated by way of interest. Interest on borrowed funds is required to be paid
irrespective of the profitability of the firm. Hence the use of debt is considered more risky than
equity funds. In fact, the use of debt is considered a double-edged sword. It entails paying a fixed
interest expense out of the profits of the firm. The balance profits belong to the shareholders. When
the firm is earning more than the cost of borrowed funds, it will magnify the returns to the
shareholders. This is called ‘trading on equity’ or financial leverage. If the firm’s cost of borrowed
funds is more than the rate of earnings, then the use of debt would reduce the earnings available to
equity shareholders. Hence, there is a need to assess the proportion of Debt and Equity in the capital
of the firm. Leverage ratios help to assess the long-term financial position of the firm.
Debt – Equity (D/E) ratio: One of the most common leverage ratios is the Debt-Equity ratio. It
compares the amount of borrowed funds (or debt) with the amount of owners’ funds (or equity) of a
firm. Debt consists of interest-bearing long-term borrowings. Sometimes, both long-term and short-
term borrowings are considered as debt. Shareholders’ funds consist of Share capital and free
reserves, i.e., the funds provided by equity shareholders or available for distribution to them.
COVERAGE RATIOS
The leverage ratios such as the Debt ratio or Debt-Equity ratio, discussed above, which study the
proportion of debt and equity in the capital structure. Besides them, analysts also calculate another
set of ratios called the Coverage ratios, which assess the adequacy or otherwise of the profits to pay
the interest obligations. The leverage ratios simply comment on the mix between debt and equity in
the capital structure of a firm. These ratios did not throw much light on the firm’s ability to meet its
obligations arising out of the capital structure, i.e., the obligation to pay the interest. Coverage ratios
help access the adequacy or otherwise of the profits/ cash flows in paying the interest obligations.
EFFICIENCY (OR ACTIVITY) RATIOS
Management and the providers of funds are concerned about the proper utilisation of the funds
invested in the business. A greater amount of sales for a given amount of capital is an indicator of
better utilisation of the funds at the disposal of the firm. Efficiency ratios (or Activity ratios) are used
to evaluate the efficiency with which a firm uses its assets. These ratios are also referred to as
Turnover ratios as they relate the various components of assets – Inventory, Debtors, or Fixed assets
with the Sales or Turnover of the firm. Usual efficiency ratios include Inventory turnover ratio,
Debtor Turnover ratio, Creditors Turnover ratio and Assets turnover ratio.
Q5- Explain Performance Budgeting and Zero base Budgeting? (v v v v v imp)
Ans – Performance Budgeting: As explained in the preceding pages, budgeting is nothing

but the technique of expressing, largely in financial terms, the management’s plans for operating
and financing the enterprise during specific periods of time. Any system of budgeting must provide
for performance appraisal, as well as follow up measures in order to be successful.
The traditional (also known as line-item or object-account) budget in government enumerates

estimated expenditures by type (and quantity) for a specified period of time, usually one year. The
expenditure is classified by the object; the personnel are listed by type of position; the budget is
divided into sections according to organisational units, department sections; and the types of
expenditure are listed by category. The primary purpose of traditional budget, particularly in
government administration, is to ensure financial control and meet the requirements of legal
accountability, that is, to ensure that appropriation, sanction or allotment limits for different items
are not related to the intended or planned outputs (or achievements). The necessity for linking the
expenditures (or inputs in financial terms) to outputs (in physical terms), facilitating the evaluation
of outcomes (or result of activities) cannot be over emphasised.
Performance budgeting (or programme budgeting) has been designed to correct the shortcomings of
traditional budgeting by emphasising management’s considerations/ approaches. Both the financial
and physical aspects are incorporated into the budget. A performance budget presents the
operations of an organisation in terms of functions, programmes, activities, and projects. In
performance budgeting (PB), precise detainment of job to be performed or services to be rendered
is done. Secondly, the budget is prepared in terms of functional categories and their sub-division
into programmes, activities, and projects. Thirdly, the budget becomes a comprehensive document.
Since the financial and physical results are interwoven, it facilitates management control.
Performance budgeting involves the evaluation of the performance of the organisation in the
context of both specific, as well as, overall objectives of the organisation. It presupposes a crystal
clear perception of organisational objectives in general and short-term business objectives as
stipulated in the budget, in particular by each employee of the organisation, irrespective of his level.
It thus, provides a definite direction to each employee and also a control mechanism to higher
management.
Performance budgeting requires the preparation of periodic performance reports. Such reports
compare budget and actual data, and show variances. Their preparation is greatly facilitated if the
authority and responsibility for the incurrence of each cost element is clearly defined within the
firm’s organisational structure. In addition, the accounting system should be sufficiently detailed and
coordinated to provide necessary data for reports designed for the particular use of the individuals
or cost centers having primary responsibility for a specific cost. The responsibility for preparing the
performance budget of each department lies on the respective Department Head. Each Department
Head will be supplied with a copy of the section of the master budget appropriate to his sphere. For
example, the chief buyer will be supplied with a copy of the materials purchase budget to arrange
forth purchase of necessary materials. Periodic reports from various sections of a department will be
received by the departmental head that will submit a summary report about his department to the
budget committee. The report may be daily, weekly or monthly, depending upon the size of the
business and the budget period. These reports will be in the form of comparison of budgeted and
actual figures, both periodic and cumulative. The purpose of preparing these reports is to promptly
inform about the deviations in actual and budgeted activity to the person who has the necessary
authority and responsibility to take necessary action to correct the deviations from the budget.
Zero base Budgeting- Earlier, we have explained the formulation of different types of budgets.
Suppose the approach adopted in the formulation and preparation of budgets is based on current
level of operations or activities, including current level of expenditure and revenue. In that case,
such budgeting is known as traditional budgeting. This type of budgeting process generally assumes
that the allocation of financial resources in the past was correct and will continue to hold good for
the future. In most cases, an addition is made to the current figures of cost to allow for expected (or
even unexpected) increases. Consequently, the budget generally takes an upward direction year
after year, in spite of generally declining efficiency. Such a system of budgeting cannot be expected
to promote operational efficiency. It may, on the other hand, create several problems for top
management. Some of these problems are:
Thus, the traditional budgeting technique may be quite meaningless in the present context when
management must review or re-evaluate every task to utilize the scarce resources in a better
manner or improve performance. The technique of zero-base budgeting provides a solution for
overcoming the limitations of traditional budgeting by enabling top management to focus on
priorities, key areas and alternatives of action throughout the organisation.
The technique of zero base budgeting suggests that an organisation should not only make decisions
about the proposed new programmes, but should also review the appropriateness of the existing
programmesfrom time to time. Such a review should particularly be done of such responsibility
centers where there are a relatively high proportion of discretionary costs. Costs of this type depend
on the discretion or policies of the responsibility centre or top managers. These costs have no direct
relation to the volume of activity. Hence, management discretion typically determines the amount
budgeted. Some examples are expenditure on research and development, personnel administration,
legal advisory services.
Zero base budgeting, as the term suggests, examines or reviews a programme or function or
responsibility from ‘scratch’. The reviewer proceeds on the assumption that nothing is to be allowed.
Therefore, the manager proposing the activity has to justify that the activity is essential and the
various amounts asked for are reasonable considering the outputs or results or volume of activity
envisaged. No activity or expense is allowed simply because it was being allowed or done in the past.
Thus, according to this technique, each new or existing programme must be justified in its entirety
each time a new budget is formulated. It involves:
Q6- Explain various Approaches to Human Resources Accountability? (v v v v

v imp) or short note MBO
Ans –Approaches to Human Resources Accountability:

Since the early 60’s there has been a growing focus on measurement and evaluation of human
resource function and with time these approaches have changed. To evaluate the contribution of
human resource function in enterprise performance human resource function must be measured
and evaluated, but choosing the right parameters and approach is a significant challenge. Below we
discuss some of these techniques/approaches. These techniques are the pre cursor of the modern
day Human Resource Accounting technique.
HR Management by Objectives (MBO): As per this technique the HR department develops specific
objectives. These objectives and developed specific objectives. These objectives are developed
based on the expectations of management regarding targets of various functional parameters. These
targets are perceived to be necessary to achieve an adequate level of performance. Measures like
turnover, absenteeism, job satisfaction, occupational health, compensation, cost, expenses,
productivity, and wastage reduction are quantifiable and many of these are objectives for many HR
functions. Whatever measures are determined and developed must be related to organizational
performance at the macro level and at the micro level they must be able to determine the
contribution of HR function to the organisation.
Competitive Benchmarking: Benchmarking as understood in common parlance is measuring key

indicators of one’s own organisation and comparing it with the organisation which is best in the
industry. Benchmarking is one of the strategies used in Quality movement and few of the pioneers in
benchmarking were Xerox, Motorola, Kodak and Texas instruments. In context of Hr function
benchmarking is applied by developing key measures that represent the output of the HR function.
Benchmarking can be used to modify and improve internal processes leading to enhancement in
quality and cost reduction. Benchmarking is a continuous learning process with an intended
outcome of improvement in overall Hr effectiveness. The competitive benchmarking process
application has been effective in the area of quality management and production but its application
in HR area is faced with a challenge due to scarcity of benchmarking data related to HR function.
HR Effectiveness Index: HR effectiveness index is a single composite index whose constituents are
various HR variables which have impact on the organisational performance. The basic principle
governing the construction of Hr effectiveness index is to combine various variables receiving
different weights according to their significance in organisational performance. The constants were
based on the plant specific factors. One of the first examples of such an index is the Employee
Relation Index (ERI) developed by General Electric in 1950. This index constituted of eight indicators
selected on the basis of employee behaviour and some of the indicators were absenteeism, visit to
plant dispensary, terminations, grievances and work stoppages. ERI can be used to evaluate HR
policies and practices, trace trends in employee relation, find areas of concern and trouble spots,
perform HR function more effectively and control personnel costs.
When ERI values were compared with plant profitability it was found that plants with higher ERI
were more profitable but the relationship was found not to be statistically significant. Another HREI
is Human Resource Performance Index (HRPX) which is used to evaluate HR function such as
selection, compensation, development and retention.
HR Profit Centers: “A profit centre is a division of a company that independently adds or is expected
to add to the bottom line (profit) of the company”. It is treated as separate, stand alone business,
responsible for its expenses. Precise evaluation of the contribution of HR department on bottom line
can be done when HR department is treated as profit centre. Traditionally HR department is seen as
an expense centre in which costs are accumulated, but there is a gradual shift where HR Expenses
are seen as investments that can contribute to the profits. Moving a step further especially in large
organisations HR department can actually function as a profit centre. When HR department operates
as profit centre it establishes competitive rates for the centre it establishes competitive rates for the
services it provides to the various other departments of the organisation and these departments are
charged for the services which they consume. Further evolution of this approach is that the outside
firms can also compete with the internal HR department to provide these services. Services or
program sold to user departments are training and development programs, compensation and
benefit administration, recruiting, safety and health programs, negotiations with trade unions and
many other.
Q7- Explain the structure and components of a balance sheet? (v v v v v imp)
Ans – BALANCE SHEET:

The ‘balance sheet’ as the name suggests, is the summary of the balances of the various assets,
liabilities and capital accounts of a business entity as on a particular date. In simple terms, it is the
summary of things owned by the entity as well as the claims against those things represented in
monetary terms as on a specific date. It contains information about both the resources and
obligations of an entity. Thus, it depicts the financial position of a business at a given point of time
which is usually the close of an accounting period. It also depicts net worth which is just one part of
the balance sheet which is also the total shareholders’ funds. Balance sheet depicts financial position
as on a particular date.
Dual Aspect Concept-
Let us take a step further in the previous example: suppose Mr. Raghav purchased some goods (raw
material) worth Rs. 10,000 in cash. This transaction will have a dual impact on the balance sheet of
RT Ltd. First, the inventory will increase by Rs. 10,000 and second, the cash balance will decrease by
Rs. 10,000. Similarly, if the goods were purchased by Mr. Raghav on credit for Rs. 10,000, the
inventory (asset) will go up by Rs. 10,000 whereas, the creditors will also increase by Rs. 10,000. This
brings us to a fundamental accounting concept known as dual-aspect in accounting. This concept
explains that each transaction made by a business entity impacts the business in two different
aspects which are equal and opposite in nature. It means that every business transaction will affect
at least two accounts which implies that for every debit there is an equivalent credit and vice versa.
For example, if your company borrows money from the bank, the company’s asset Cash is increased
(debited) and the company’s liability Notes Payable is also increased (credited). It is because of this
feature that both sides (assets and liabilities) of the balance sheet will always be equal. This concept
forms the basis of double-entry accounting and is used by all accounting frameworks for generating
accurate and reliable financial statements. The dual aspect concept is also explained in the
fundamental accounting equation:
Q8- Explain what do you Understand by the concept of fraud triangle? (v v v v

v imp)
Ans – FRAUD TRIANGLE:

In the context of Forensic Auditing it would be worthwhile to discuss the concept of Fraud Triangle,
This concept identifies three categories factors of risk that are present in the organization and these
factors when present can potentially lead to fraud or when fraud occurs these factors are present in
the organization. These three factors are:
Q9- Explain Contents of Annual Report? What are the Difference between
Annual Reports of public company and private company? (v v v v v imp)
Ans – CONTENTS OF ANNUAL REPORT:

Let’s look at the contents of an annual report. Figure 1 displays the four broad contents of an annual
report, namely, 1) Non-audited information, 2) Financial statement, 3) Notes to the accounts and 4)
Accounting policies.
and the economy of the country. It also provides an overview of the trading year, a personalized
overview of the company’s performance over the past year and usually covers strategy, financial
performance and future prospects.
Fixed assets: Land and buildings held for use in the production or supply of goods or services, or for
administrative purposes, are stated at cost less accumulated depreciation and accumulated
impairment losses. Freehold land is not depreciated. Property, plant and equipment are carried at
cost less accumulated depreciation and impairment losses, if any. The cost of property, plant and
equipment comprises its purchase price/ acquisition cost, net of any trade discounts and rebates,
any import duties and other taxes (other than those subsequently recoverable from the tax
authorities), any directly attributable expenditure on making the asset ready for its intended use,
other incidental expenses and interest on borrowings attributable to acquisition of qualifying
property, plant and equipment up to the date the asset is ready for its intended use. Machine spare
parts are recognized in accordance with this Ind AS (Indian Accounting Standard) when they meet
the definition of property, plant and equipment, otherwise, such items are classified as inventory.
Subsequent expenditure on property, plant and equipment after its purchase / completion is
capitalized only if such expenditure results in an increase in the future benefits from such asset
beyond its previously assessed standard of performance. The estimated useful life of the tangible
assets and the useful life are reviewed at the end of the each financial year and the depreciation
period is revised to reflect the changed pattern, if any. An item of property, plant and equipment is
derecognized upon disposal or when no future economic benefits are expected to arise from
continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of
property, plant and equipment is determined as the difference between the sales proceeds and the
carrying amount of the asset and is recognized in the statement of consolidated profit and loss.
Q10- Explain CostAccounting? What are the Elements ofCost? (v v v v v imp)
Ans – COSTACCOUNTING: In the initial stages, cost accounting was merely considered to be a
technique for ascertainment of costs of products or services on the basis of historical data. In the
course of time it was realised, due to the competitive nature of the market, that ascertainment of
cost' was not as important as controlling costs was. Hence, cost accounting is considered more a
technique for `cost control' than merely for cost ascertainment. Due to technological developments
in all fields, `cost reduction' has now come within the ambit of cost accounting. Cost accounting is
thus concerned with:
ELEMENTS OFCOST
In order to understand the correct interpretation of the term cost, it will be appropriate for us to
learn about the basic elements of cost. There are broadly three elements of cost
SECOND PRIORITY MOST IMPORTANT QUESTIONS
Q11- Explain the meaning and steps of accounting process? (v v v v v imp)
Ans – Accounting process involves the following steps or stages::
Q12- Explain the techniques of Absorption Costing and Marginal Costing? (v v

v v v imp)
Ans – ABSORPTIONCOSTING::
Absorption Costing technique is also termed as Traditional or Full Cost Method. According to this
method, the cost of a product is determined after considering both fixed and variable costs. The
variable costs, such as those of direct materials, direct labour, etc. are directly charged to the
products, while the fixed costs are apportioned on a suitable basis over different products
manufactured during a period. Thus, in case of Absorption Costing all costs are identified with the
manufactured products. This will be clear with the help of the following illustration.
MARGINALCOSTING
The technique of Marginal Costing is a definite improvement over the technique of Absorption
Costing. According to this technique, only the variable costs are considered in calculating the cost of
the product, while fixed costs are charged against the revenue of the period. The revenue arising
from excess sales over variable costs is technically known as Contribution under Marginal Costing
ABSORPTION COSTING AND MARGINAL COSTING:DIFFERENCES
The difference between Absorption Costing and Marginal Costing is based on the recovery of fixed
overheads. The difference in the valuation of inventory under the two techniques is a consequence
of such treatment. However, for the sake of clarity, we are analysing the difference from angles, viz.,
recovery of overheads and valuation of stock.
Q13- Explain Examine the role of break-even analysis by elaborating the

CostVolume-Profit framework? (v v v v v imp) OR MARGINAL COST
ANDCONTRIBUTION
Ans – MARGINAL COST ANDCONTRIBUTION

Once the fixed and variable costs are segregated it becomes possible to calculate the total
contribution as well as total contribution per unit. You will recall that total contribution equals the
difference between sales and variable ( marginal) costs. Total contribution per unit is expressed in
per-unit terms by dividing both sales and variable costs by the total number of units and deducting
per unit variable cost from per unit selling price. The total contribution may be directly divided by
total number of units to obtain similar results.
You should remember that total contribution is the contribution of sales revenue tofixed cost
recovery and profit after meeting the total variablecosts. you may also recapitulate that total
contribution may also be expressed as a percentage, whichis recognised as the P/V ratio. This
isthe‘1-variable cost’ ratio. And variable cost ratio is sales divided by total variable cost. You must
now understand the basic thrust of the Profit Graph presented in an earlier section. So far, you must
be wondering how the contribution line was plotted on that graph. Now, probably, it is easier to
comprehend. The contribution line is, in fact, obtained by plotting contribution per unit figures
against different levels of sales values.
You may switch back to the Profit Graph and have a closer look at the contribution line. This line
originates from the loss zone and raises up to the break-even point BE on the sales volume line. You
may interpret this part of the contribution line up to BE i.e., the break-even point as indicative of the
recovery of fixed costs only. It is only after this point that the contribution line combines itself with
the X-axis and the right Y-axis to form a triangle PXBE which has been marked as the profit area.
Break-even Point
We had earlier stated that the break-even point is not all that is contained in the CVP analysis. It is
only incidental to such an analysis. You have already seen that the break-even point is just one point
on the whole journey of the contribution line as it transits from the fixed cost point F to the profit
point P via the sales revenue line viz, the Xaxis. The horizontal intercept of the contribution line at BE
is the break-even point. At this point, total costs and total revenues are held in equilibrium and a no-
profit no loss position emerges.
Margin of Safety
While revealing the estimated profit or loss at different levels of activity, the Profit Graph also
suggests the magnitude by which the planned activity level can fall before a loss is experienced. This
is known as the Margin of Safety and is obtained by deducting the break-even sales from the
planned sales.
Q14- Explain the DuPont analysis technique? (v v v v v imp)
Ans – DuPont Analysis
The most important aspect of a firm’s operations is the rate of return the firm is able to generate on
the equity investment made by the shareholders. Equity shareholders are the real owners of the
firm and take all the risk. Hence, the Return on Equity (ROE) need to be analysed in greater depth.
This is achieved by the DuPont Analysis, which breaks down the ROE ratio into its three important
components. These three components of performance measurement are Profit margin, Asset
turnover, and Equity multiplier.
Q15- Explain Performance Management System as Human resource

accounting as Management Decision Tool? (v v v v v imp)
Ans – HUMAN RESOURCE ACCOUNTING AS MANAGEMENT DECISION TOOL:

The organizational goal of wealth maximization requires allocation and administration of resources.
Allocation and administration of resources require quantification and in absence of quantification
and in absence of quantification allocation may be distorted leading to sub optimum decisions by
managers. This is particularly relevant for intangible resources like human resources. However
empirically it is not yet established that human resource accounting information helps management
to make optimum decisions which may be impacted either way in presence/ absence of Human
Resource Accounting information.
Performance Management System (PM)
Performance Management Systems (PMS) is the systematic approach to measure and manage
employee’s performance in light of the predetermined organisational goals. PMS is used to support
decisions in the area of training, career development, and layoffs. PMS process starts with setting of
clear and specific performance expectations, next the achievements are measured followed by
formal and informal feedback.
The main element of PMS is the measurement process and HRA provides the input for the
measurement process. The various categories of human resource investments are cost associated
with recruitment, hiring, orientation, training and integration with existing work force. These
estimated costs provides input to estimate replacement cost of manpower at various levels and this
estimate of replacement cost goes into planning of manpower acquisition.
HRA can be used as an alternative accounting system to measure the cost and value of employers for
management decisions like training and development. For training and development purpose HRA
information can be used to gauge the potential worth of individuals and if reasonable improvement
is not seen after training resources can be directed to those employees whose potential and
performance could be enhanced
For a well functioning and reliable evaluation process to operate HRA can provide inputs regarding
the value of individual employees of an organisation.
Q16- Explain the meaning and importance of journal? (v v v v v imp)
Ans – JOURNAL:
Journal is a historical record of business transaction or events. The word journal comes from the
French word “Jour” meaning “day”. It is a book of original or prime entry. Journal is a primary book
for recording the day-today transactions in a chronological order i.e., the order in which they occur.
The journal is a form of diary for business transactions. This is called the book of first entry since
every transaction is recorded firstly in the journal.
Q17- Explain gross profit, operating profit and net profit? (v v v v v imp)
Ans –
Various revenue and expenses arising during the course of business operations and shown in the
Trading & Profit and Loss Account. Broadly, we understand that profit is the excess of revenue over
the expenses recognised during a fiscal year (or accounting period). Conversely, loss is the excess of
expenses over revenues realised during a fiscal year. However, the significance of dividing income
statement into trading and profit and loss account lies in the presentation of gross profit and net
profit respectively. Besides, business entities are also interested in ascertaining the profit arising
solely from business operations, referred to as operating profit.
Gross Profit
The excess of sales revenue over the cost of goods sold is called gross profit. Whereas, gross loss is
the excess of cost of goods sold over revenue earned from sales. It only deducts the direct expenses
related to the production of goods. Hence, it is the net result of a trading account. Gross profit,
taken as a percentage of sales is a significant financial ratio used in financial analysis by managers for
decision making purposes. This percentage indicates the average mark-up obtained on products
sold.
Net Profit
Net profit is simply, the amount which is available to the business for appropriation. It is the net
income from both operating and non-operating business activities after reducing both direct and
indirect expenses. It is either distributed as dividends to shareholders (owners) or retained in the
business as retained earnings, thereby increasing the owners' equity in the business. Alternatively, it
is called as PAT (Profit After Tax) or EAT (Earnings After Tax). After dividend distribution (if any), the
remaining surplus is added to the retained earnings. Retained earnings accumulated over the years
is shown in the Balance Sheet under the head Reserves and Surplus.
Net profit impacts the decision of various users of financial statements such as management,
investors, creditors, competitors etc. For example, creditors refer to the net income of a company to
gauge the repayment capability before sanctioning a loan.
Q18- Explain the purpose and preparation of cash flow statement? (v v v v v

imp)
Ans – The Cash flow statement is one of the three most important financial statements. It shows
the inflows and outflows of cash and cash equivalents over a period of time. The users of financial
information give substantial importance to this statement as it acts as a tool to study the strength
and longterm future outlook of the company. It also takes into account various activities of an
enterprise. The cash flow statement of an enterprise provides information about the historical
changes in cash and cash equivalents by classifying all cash flows derived from operating, investing
and financing activities. The revised Accounting Standard -3 (AS-3) made it mandatory for all listed
companies to prepare and present an annual cash flow statement along with other financial
statements.
Q19- Explain the concept of Activity Based Costing (ABC) and its objectives
and features? (v v v v v imp)
Ans – Activity-Based Costing (ABC) is a system of costing, where costs are first traced to activities
and then to products. This costing system works with an assumption that activities are responsible
for the costs that are incurred. As stated earlier, costs are charged to products based on the
individual product's use for each activity.
IMPORTANCE OF ACTIVITY BASED COSTING(ABC)
OBJECTIVES OF ACTIVITY BASED COSTING (ABC)
MERITS AND DEMERITS OF ACTIVITY BASED COSTING (ABC)
Q20- What is Cost-Volume-ProfitAnalysis? (v v v v v imp)
Ans – The Cost-Volume-Profit (CVP) analysis is an attempt to measure the effect of changes in
volume, cost, price and products-mix on profits. You will appreciate that while these variables are
interrelated, each one of them, in turn, is affected by a number of internal and external factors. For
instance, costs vary due to choice of plant, scale of operations, technology, the efficiency of
workforce and management efficiency etc. Also, the cost of inputs bought externally is affected by
market forces. While many wide-ranging factors influence costs and profits, the largest single
variable affecting them in the shortrun is the volume of output. Hence, the CVP relationship acquires
a vital significance for the manager facing a wide spectrum of short-run decisions like: what are the
most profitable and what are the least profitable products? How does a reduction in selling prices
affect profits? How does volume or productmix affect product costs and profits? What will be the
break-even point if volume and costs change? How will an increase in wages and/or other operating
expensesaffect profit? What will be the effect of plant expansion on costs, profit and volume of
sales? Answers to all such questions will have to be formulated in a cost-benefit framework, and CVP
analysis will offer the technique for doingit.
Q21- What is Meaning of Variance? Explain the Cost Variances? (v v v v v imp)
Ans – MEANING OF VARIANCE

Variance is the difference between budgeted and the actual level of activity. Since, as explained
earlier, the profitability of a business depends both on costs and sales, it is important to analyse
both cost and sales variance. Cost variance is the difference between ‘what should have been the
cost' (popularly termed as standard cost) and ‘what has been the cost’ (i.e. actual cost). If the actual
costs are less than the standard cost, the variance is termed as ‘favourable'. However, if the actual
cost is more than the standard costs, variance is termed as‘adverse' or ‘unfavourable'.
Sales variance is the difference between `what should have been the sales' (popularly) termed as
Budgeted sales) and `what have been the sales ` (i.e. the actual sales). If the actual sales amount is
more than the budgeted sales, the variance is termed as 'favourable'. However, if the actual sales
amount is less than the budgeted sales, the variance is termed as ‘adverse' or ‘unfavourable'.
COST VARIANCES
FIRST PRIORITY MOST IMPORTANT SHORT QUESTIONS
Q1- Difference between financial accounting vs management accounting? (v

v v v v imp)
Ans – Financial Accounting
Financial accounting dates from the development of large-scale business and the advent of Joint
Stock Company (a form of business which enables the public to participate in providing capital in
return for ` shares' in the assets and the profits of the company). This form of business organisation
permits a limit to the liability of their members to the nominal value of their shares. This means that
the liability of a shareholder for the financial debts of the company is limited to the amount he had
agreed to pay on the shares he bought. He is into liable to make any further contribution in the
event of the company's failure or liquidation. As a matter of fact, the law governing the operations
(or functioning) of a company in any country (for instance the Companies Act in India) gives a legal
form to the doctrine of stewardship which requires that information be disclosed to the
shareholders in the form of annual income statement and balance sheet.
Briefly speaking, the income statement is a statement of profit and loss made during the year of the
report; and the balance sheet indicates the assets held by the firm and the monetary claims against
the firm. The general unwillingness of the company directors to disclose more than the minimum
information required by law and the growing public awareness have forced the governments in
various countries of the• world to extend the disclosure (of information) requirements The
importance attached to financial accounting statements can be traced to the need of the society to
mobilise the savings and channel them into profitable investments. Investors, whether they are large
or small, must be provided with reliable and sufficient information in order to be able to make
efficient investment decisions. This is the most significant social purpose of financial accounting.
Management Accounting
The advent of management accounting was the next logical step in the developmental process.- The
practice of using accounting information as a direct aid to management is a phenomenon of the 20th
century, particularly the last 30-40 years. The genesis of modern management with its emphasis on
detailed information for decision- making provide a tremendous impetus to the development of
management accounting.
Management accounting is concerned with the preparation and presentation of ac-counting and
controlling information in a form which assists management in the 'formulation of policies and in
decision-making on various matters connectedwith routine or non-routine operations of business
enterprise. It is through the techniques of management accounting that the managers are supplied
with information which they need for achieving objectives for which they are accountable.
Management accounting has thus shifted the focus of accounting from recording and analysing
financial; transactions to using information for decisions affecting the future. In this sense,
management accounting has a vital role to play in extending the horizons of modern business. While
the reports emanating from financial accounting are subject to the conceptual framework of
accounting, internal reports-routine or non-routi ne are free from such constraints.
Q2- Difference between Operating and Non-operating expenses? (v v v v v

imp)
Ans – Operating and Non-operating expenses
Operating expenses are the expenses incurred for running the business operations but are not
directly related to the core activities of production or trading. Operating expenses are usually
connected with generating sales. The common examples of operating expenses include
administrative expenses, office expenses, selling and distribution expenses, marketing expenses,
depreciation, bad debts etc.
Non-operating expenses are expenses incurred on non-core activities. These expenses are not
related to production or sales, but are incidental to the business operations. Few examples of non-
operating expenses include: interest expense, loss on sale of a fixed asset, legal fee, etc.
Q3- Difference First in First out (FIFO) and Last in First out (LIFO) ? or
Inventory valuation? (v v v v v imp)
Ans – Inventory valuation-
assets are recorded in the balance sheet at the cost price at which they are purchased. Similarly,
inventory is also valued at cost. The challenge here is that the cost of inventory purchased doesn’t
remain constant over an operating cycle. Inventory used in the production of finished goods is
purchased multiple times in an operating cycle to ensure a smooth production process. Similarly, in a
trading business, inventory is purchased in multiples batches to ensure smooth sales. However, the
cost of purchasing inventory might fluctuate during an accounting period resulting in different cost
prices. It is because of this fluctuation in the purchase price of inventory that various methods of
nventory valuation have evolved. Two of the most commonly used methods Financial Statements
are as follows:
Q4- Difference between Direct and Indirect Cost? (v v v v v imp)
Ans – Direct and Indirect Cost -
Direct Costs: These are costs that can be directly, conveniently and wholly traced to a product,
service or job. Examples of such costs are direct material, direct labour and direct expenses
Indirect Costs: These are costs that cannot be directly, conveniently and wholly identified with a
specific product, service or job. They include all overhead costs such as salaries of timekeepers,
stores keepers, foremen, printing and stationery costs,etc. Indirect or overhead costs are
apportioned to different jobs, products or services on a reasonable basis. For example, the indirect
factory labour cost may be apportioned over different jobs according to their direct labour cost.
Similarly, the selling overheads can be charged to different products according to their sales values.
It may be noted that the more the share of the direct cost in relation to the total cost of the product,
the greater is the exactness in costing. The reason for this is that indirect costs are allocated (or
apportioned) on an estimated basis.
Q5- Difference between fixed and variable cost? (v v v v v imp)
Ans – Fixed Costs:-
These are the costs that remain constant irrespective of the quantum of output within and up to the
capacity that has been built up. Examples of such costs are rent, insurance charges, management
salary, etc. Fixed costs remain constant per unit of time. As a result, they decrease per unit with
every increase in output and vice versa. For example, if Rs.6,000 have been paid as rent for a factory
building with an output of 1,000 units, the cost of rent per unit is Rs.6. In case the output increases
to 1,200 units, the cost of rent per unit will decrease to Rs.5. In case the output is reduced to 800
units, the cost of rent per unit will increase toRs.7.50. Fixed costs sometimes are also referred to as
period costs. They can further be divided into (i) committed fixed costs (ii) discretionary fixedcosts.
Variable Costs: These are the costs that vary in direct proportion to output. They increase or
decrease in the same proportion in which the output increases or decreases. The examples of such
costs are direct material, direct labour, power, etc.
Variable costs may be said to be constant per unit of output. For example, if a factory incurs Rs.
1,000 on raw material for an output of 1,000 units, the cost of raw material per unit would amount
to Re. 1. If the output increases to 2,000 units, the cost of raw material would proportionately
increase to Rs. 2,000 (i.e. Re. 1 x 2,000). Similarly, if the output decreases to 800 units, the cost of
raw material would also decrease to Rs 800 (i.e. Re.1 x800) Variable costs are also referred to as
product costs. Figure 6.2 gives graphical presentation of variable costs
Q6- Explain the Opportunity Costs? (v v v v v imp)
Ans – Opportunity Costs
Opportunity cost refers to the advantage, in measurable terms, which has been foregone on account
of not using the facilities in the manner originally planned. For example, suppose an owned building
is proposed to be utilised for housing a new project plant. In that case, the likely revenue that the
building could fetch if rented out is the opportunity cost that should be considered while evaluating
the profitability of the project. Suppose you have a sizeable deposit in a bank that is fetching you a
return of 10% per annum. When your deposit is nearing maturity (but can be renewed), your friend
approaches you with a business proposal that is likely to earn you a return of 18% (after-tax). After
careful consideration of the factors relating to risk and return, you decide to go in for the proposal.
Obviously, you have to give tip to the existing alternative in view of the limited funds you have. Thus
you will no longer have the bank deposit. The sacrifice in the form of 10% interest on your deposit in
the bank that you have to forego if you go in for a business proposal, is the opportunity cost for the
new alternative.
Q7- Explain Controllable and Uncontrollable Costs? (v v v v v imp)
Ans – Controllable Costs:

These are costs that can be influenced by the action of a specified member of an organisation. For
example, the foreman of a production department can control the utilisation of power or raw
materials in his department. These are, therefore, controllable costs as far as he is concerned.
Uncontrollable Costs: These are costs that cannot be influenced by the action of a specified member
of an undertaking. For example, the foreman of a production department can control the wastage of
power in his department, but he cannot control the power being wasted in the powerhouse itself,
resulting in a higher cost per unit of power to him. Similarly, he cannot control the increase in the
cost of materials consumed in his department if the purchasing department or the supplying
department buys the materials at higher prices due to its own inefficiency. Such costs are
controllable at a particular level of management while they are uncontrollable at some other level of
management.
The difference between controllable and uncontrollable costs is of particular significance to the
management. The executive concerned should be held responsible only for those costs which are
within his control and not for costs beyond his control.
Q8- Explain MARGINALCOST? (v v v v v imp)
Ans – MARGINALCOST:
The technique of marginal costing is concerned with marginal cost. It is, therefore, necessary for you
to understand the term ‘Marginal Cost correctly’. The Institute of Cost and Management
Accountants, London, has defined Marginal Cost as "the amount at any given volume of output by
which aggregate costs are changed if the volume of output is increased by one unit". On analysing
this definition, we can conclude that the term "Marginal Cost" refers to an increase or decrease in
the amount of cost based on the increase or decrease of production by a single unit. The unit may be
a single article or a batch of similar articles. This will be clear from the following example.
A factory produces 500 tricycles per annum. The variable cost per tricycle is Rs 100. The fixed
expenses are Rs 10,000 per annum. Thus, the cost sheet of tricycles will appear as follows:
Q9- Explain the difference Activity Based Costing (ABC) and Activity Based
Management(ABM)? (v v v v v imp)
Ans –
Q10- Explain PROFITGRAPH? (v v v v v imp)
Ans – A business Firm usually pursues a profit objective. In a way, it plans for maximising its profit.
Both the operations plan and the firm’s overall planare couched in terms of this ‘profit objective’,
and their primary variables are cost, volume, and profit forecast for the planning period (or horizon).
The critical variable is usually the ‘volumeof sales forecast’ around which costs and profit estimates
are built. A question often faced in the planning stage itself is: what will happen to profit if the
forecast level of sales changes? Such a question will not always be irrelevant because conditions
change so rapidly. A manager seeking an appropriate answer to this question would want to get
some guidance. The profit graph, which shows the relationship between profit and volume (P/V
relationship), helpsprovide the questioning managerwitha possible answer.
You will recall from the calculations presented in the previous section about gauging the impact of
changes in price, volume, etc., on profit that a term called ‘marginal income’ was calculated (please
see item number 4 in each of the Tables 9.1, 9.2 and 9.3). Please note that ‘marginal income’ is the
difference between sales and variable expenses and representsthetotal contribution to fixed
expenses and profit. This term may be understood in another way as well. If variable expenses are
expressed as a per cent of sales, we get the variable cost ratio. Then, total contribution or marginal
income is equal to the “1-variable cost ratio”. In all the three situations given in Section 9.3, the
variable cost ratio for the normal volume of sales is 50% or .50. Total contribution or marginal
income would, therefore, be 1-.50 = .50 or 50%. Another term for `marginal income’ is the P/V ratio
or the profit-volume ratio.You must note that the P/V ratio is not obtained by dividing sales volume
by profit but by deducting the variable cost ratio With the primary purpose of the profit graph and
some of its vital variables having been clarified, you may now move on to a hypothetical profit graph
to comprehendtherelationships involved. Figure 9.1 provides this graph. We may explain the
construction of the graph to you and will then specify the assumptions behind this graph in the
following section. OX on the X-axis provides sales volume, and OY on the Y-axis plots profit above 0
and loss below O.OFC measures the fixed cost. The line FCP joins two points viz. FC the fixed cost
and P the profit expected to be released as the profitvolume plan. The area encompassed by XBE is
the margin of safety, while the point BE is the break-even point. BEPX is the profit area, and the line
FCBEP is the total contribution or the PV line. If the sales volume does not materialise at point X, as
per the plan, and drops to X,’ the profit zone will shrink to a new profit area BEX’. Further declines in
sales volume will be absorbed by the margin of safety, after which losses will begin showing up. All
these points will come up for further clarification in subsequentsections.
Q11- Explain CONTROL RATIOS? (v v v v v imp)
Ans – The budget is a part of the planning process. After the various budgets, including the master
budget, have been prepared, you may like to compare actual performance with the budgeted
performance. This can be done by using three important ratios as shown below:
Q12- Explain SALES VARIANCES? (v v v v v imp)
Ans – SALES VARIANCES

Sales are affected by two factors (i) the selling price and (ii) the quantum of sales. The variations in
the standards set and actual for the purpose may be mainly due to change in market trends. Usually,
if the selling price increases, the volume of sales will be lower than the standard. It may result in a
favourable variance as to price or unfavourable variance as to quantity. It is to be borne in mind that
higher price here is to be viewed as a favourable(higher price paid for the material, it will be
recalled, causes an adverse variance) and lower volume of sales is to be viewed as unfavourable (in
case of materials, it is the other way around, i.e. lower usage of materials than the standard causes a
favourable variance). It is well known that demand and supply position in the market decide the
quantity of sales and the selling price. The variations may be on account of control lab: as well as
non-controllable factors. changes in market conditions and demand by customers¬ are, of course,
beyond the control of management. However, certain factors like high prices are controllable, and
an effort should be made to check adverse variations due to these factors.
Q13- Explain METHODS OF FRAUD DETECTION? (v v v v v imp)

Ans – SALES VARIANCES

There are two main methods used to detect fraud which are supervised and unsupervised.

MMPC 04 PDF EBOOK Merged SECURE

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

MMPC 04 PDF EBOOK Merged SECURE

Uploaded by

Copyright:

Available Formats

SELF GYAN

ये book के वल ignou एग्जाम की तैयारी कराने के

fully focused for exam

Minimum preparation maximum

100 percent result

High quality materials in books

only important questions

MMPC 04 Accounting for Managers

Q1- Distinguish between operating activities, investing activities and

Q2- Explain budgetary control and how to installing a budgetary cantol

Q3- Explain Break-evenAnalysis? (v v v v v imp)

EFFICIENCY (OR ACTIVITY) RATIOS

Q5- Explain Performance Budgeting and Zero base Budgeting? (v v v v v imp)

Ans – Performance Budgeting: As explained in the preceding pages, budgeting is nothing

The traditional (also known as line-item or object-account) budget in government enumerates

Q6- Explain various Approaches to Human Resources Accountability? (v v v v

Ans –Approaches to Human Resources Accountability:

Competitive Benchmarking: Benchmarking as understood in common parlance is measuring key

Q7- Explain the structure and components of a balance sheet? (v v v v v imp)

Ans – BALANCE SHEET:

Dual Aspect Concept-

Q8- Explain what do you Understand by the concept of fraud triangle? (v v v v

Ans – FRAUD TRIANGLE:

Ans – CONTENTS OF ANNUAL REPORT:

Q10- Explain CostAccounting? What are the Elements ofCost? (v v v v v imp)

SECOND PRIORITY MOST IMPORTANT QUESTIONS

Q11- Explain the meaning and steps of accounting process? (v v v v v imp)

Ans – Accounting process involves the following steps or stages::

Q12- Explain the techniques of Absorption Costing and Marginal Costing? (v v

ABSORPTION COSTING AND MARGINAL COSTING:DIFFERENCES

Q13- Explain Examine the role of break-even analysis by elaborating the

Ans – MARGINAL COST ANDCONTRIBUTION

Q14- Explain the DuPont analysis technique? (v v v v v imp)

Ans – DuPont Analysis

Q15- Explain Performance Management System as Human resource

Ans – HUMAN RESOURCE ACCOUNTING AS MANAGEMENT DECISION TOOL:

Performance Management System (PM)

Q16- Explain the meaning and importance of journal? (v v v v v imp)

Q18- Explain the purpose and preparation of cash flow statement? (v v v v v

IMPORTANCE OF ACTIVITY BASED COSTING(ABC)

OBJECTIVES OF ACTIVITY BASED COSTING (ABC)

MERITS AND DEMERITS OF ACTIVITY BASED COSTING (ABC)

Q20- What is Cost-Volume-ProfitAnalysis? (v v v v v imp)

Q21- What is Meaning of Variance? Explain the Cost Variances? (v v v v v imp)

Ans – MEANING OF VARIANCE

FIRST PRIORITY MOST IMPORTANT SHORT QUESTIONS

Q1- Difference between financial accounting vs management accounting? (v

Q2- Difference between Operating and Non-operating expenses? (v v v v v

Ans – Operating and Non-operating expenses

Ans – Inventory valuation-

Q4- Difference between Direct and Indirect Cost? (v v v v v imp)

Ans – Direct and Indirect Cost -

Q5- Difference between fixed and variable cost? (v v v v v imp)

Ans – Fixed Costs:-

Q6- Explain the Opportunity Costs? (v v v v v imp)

Ans – Opportunity Costs

Q7- Explain Controllable and Uncontrollable Costs? (v v v v v imp)

Ans – Controllable Costs:

Q8- Explain MARGINALCOST? (v v v v v imp)

Q10- Explain PROFITGRAPH? (v v v v v imp)

Q11- Explain CONTROL RATIOS? (v v v v v imp)

Q12- Explain SALES VARIANCES? (v v v v v imp)

Ans – SALES VARIANCES