Cover Table of Contents a Textbook of Financial Cost Management Accounting Revised Edition

8/12/2019 Cover Table of Contents a Textbook of Financial Cost Management Accounting Revised Edition

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TEXTBOOK OFFIN NCI L COSTND

M N GEMENTCCOUNTING

Dr. P PERIASAMYM.B.A. Ph.D.

Reader,Department of Business Management,Erode Arts College,Erode - 638 009

atGJIimalaya CJlublishingGJIouseMUMB I DELHI N GPUR B NG LORE HYDER B D


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UTHORNo part o this pUblication should be reproduced, stored in a retrieval system, or transmitted in any form or by any means,electronic, mechanical. photocopying, recording' and/or otherWise without the prior written permission o the author and thepublisher. '

Published by

Branch OfficesDelhi

Nagpur

angalore

Hyderabad

Printed by

Revised Edition: 2 1

Mrs. Meena Pandeyfor HIMALAYA PUBLISHING HOUSE"Ramdoot", Dr. Bhalerao Marg, Girgaon.Mumbai - 400 004.Phones: 23860170& 23863863, Fax: 022-23877178Email: [email protected]: www.himpub.com"Pooja Apartments", 4-B, Murari Lal Street,Ansari Road, Darya Ganj,New Delhi - 110 002.Phone: 23270392, Fax: 011-23256286Kundanlal Chandak Industrial Estate,Ghat Road, Nagpur - 440 018.Phone: 2721216, Telefax: 0712-2721215No. 16/1 (Old 1211 , 1st Floor,Next to Hotel Highlands, Madhava Nagar,Race Course Road, Bangalore - 560 001.Phones: 22281541 &22385461, Fax: 080-22286611No. 2-2-1 167 2H, 1st Floor,Near Railway Bridge, Tilak Nagar,Main Road, Hyderabad - 500 044.Phone: 55501745, Fax: 040-27560041Geetanjali Press Pvt. Ltd.Kundanlal Chandak Industrial Estate,Ghat Road, Nagpur - 440 018.

ISBN : 978-93-5024-501-9


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CONTENTS

(1) ACCOUNTING PRINCIPLES AND CONCEPTS 1 - 6Meaning and Scope o Accounting - Definition o Accounting - Steps o Accounting - Functions oAccounting - Objectives o Accounting - Book keeping - Limitations o Accounting; Branches oAccounting; Accounting Principles - Accounting Concepts - Entity Concept - Dual Aspect Concept- Accounting Period Concept - Going Concern Concept - Cost Concept - Money MeasurementConcept - Matching Concept - Realization Concept - Accrual Concept - Rupee Value Concept;Accounting Conventions - Conventions o Disclosure - Convention o Conservatism - Conventiono Consistency - Convention o Materiality - Questions.

(2) DOUBLE ENTRY SYSTEM OF ACCOUNTING 7 - 12Meaning - System o Accounting - Cash System - Mercantile System - Mixed System - SingleEntry System - Double Entry System - Advantages - Factors Common to Every Business; Types oAccounts - Personal Accounts - Real Accounts - Nominal Accounts; Accounting Rules - DebitAspect - Credit Aspect - Problems and Solutions and Exercises - Questions.

(3) ACCOUNTING BOOKS AND RECORDS 13 89Introduction - Meaning o Books and Records - Journal - Meaning - Specimen ruling o Journal -Preparation o Journal - Types o Journal - General Journal - Special Journals - Sales Book -Purchase Book - Sales Returns Book - Purchase Returns Book - Preparation Subsidiary Journals -Bills Receivable Book - Bills Payable Book - Cash Book - Types o Cash Book - Preparation oCash Book - Petty Cash Book - Preparation o Petty Cash Book - Purpose o Subsidiary Books -Illustrations - Solutions - Questions and Practical Problems; Ledger - Meaning - Specimen Rulingo Ledger - Posting o Journal to Ledger - Balancing o Ledger - Difference between Journal andLedger - Preparation o Ledger - Illustrations - Solutions - Questions and Exercises; Trial Balance- Meaning - Objectives - Errors not disclosed by Trial Balance - Classification o Errors - Errors oOmission - Errors o Commission - Errors o Principles Compensating Errors - Errors Disclosed byTrial Balance - Locating Errors - Suspense Account - Method o Preparation o Trial Balance -Specimen - Problems - Solutions - Questions and Exercises.

(4) FINAL ACCOUNTS 9 121Meaning - Manufacturing Account - Components o Manufacturing Account - Illustration andSolution; Trading, Profit and Loss Account - Meaning - Purpose - Specimen Format - Elements oTrading Account - Equations o Trading Account - Profit and Loss Account - Specimen Format -Preparation o Final Accounts - Operating Expensel - - Non-operating Expenses - Operating Incomes .- Non-operating Incomes; Balance Sheet - M e a n i n g ~ t >urpose - Specimen form o Balance Sheet -Assets and Liabilities - Classification o s s e t ~ hl i :Uabilities - Adjustment Entries - Differencebetween Profit and Loss Account and Balance S};et:t - Preparation o Profit Loss and BalanceSheet - Illustrations - Solutions - Questions - Exf:ldses.


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(5) DEPRECIATION 122 - 148Introduction - Meaning and Definition of Depreciation, Depletion and Amortization - Purpose -Factors affecting Depreciation - Methods of charging Depreciation - Straight Line Method - WrittenDown Value Method - Annuity Method - Sinking Fund Method - Revaluation Method. InsurancePolicy Method - Depletion Method - Sum of Digits Method - Machine Hour Rate Method -Calculation of Machine Hour Rate - Illustrations - Solutions - Questions - Exercises.

(6) FINANCIAL STATEMENTS ANALYSIS ND INTERPRETATION 149 - 172Introduction - Meaning of Income Statements, Balance Sheet and Statement of Retained arnings-Nature of Financial Statements - Objectives of Financial Statements - Limitations of FinancialStatements; Analysis and Interpretation - Meaning - Types of Analysis and Interpretations - InternalAnalysis - External Analysis - Horizontal Analysis - Vertical Analysis - Rearrangement of IncomeStatements - Income Statement Equations - Rearrangement of Balance Sheet - Balance SheetEquations - Methods of Analysis and Interpretations - Comparative Financial Statements - CommonSize Statements - Trend Analysis - Ratio Analysis - Fund Flow Analysis - Cash Flow Analysis -Illustrations - Solutions - Questions - Exercises.

(7) FUND FLOW STATEMENT 173 - 209Introduction - Meaning of Fund, Flow of Fund and No Flow of Fund - Statement of changes inFinancial Position - Flow of Funds chart - No Flow of Funds Chart - Examples of Flow of Fund -Components of Flow of Funds - Current Assets - Current Liabilities - Non-current Assets -Non-current Liabilities - Fund Flow Statement - Meaning - Difference between Fund Flow Statementand Income Statement - Fund Flow Statement Vs Balance Sheet - Preparation of Fund FlowStatement; Fund From Operations - Statement of Changes in Working Capital - Fund Flow Statement- Meaning - Specimen Format - Purposes - Calculation of Fund From Operations - Illustrations -Solutions - Rules for Preparation of Working Capital Statement - Specimen Form - Illustrations -Sources of Fund and Applications of Fund - Components of Sources of Fund and Applications of Fund- Calculation of Sources and Application of Fund - Illustrations - Solutions - Exercises.

(8) CASH FLOW STATEMENT 210 - 232Meaning - Purpose of Cash Flow Statement - Difference between Cash Flow Statement and FundFlow Statement - Limitations - Preparation of Cash Flow Statement - Flow of Cash UnderNon-Current Items - Flow of Cash due to Operations - Non-cash Items - Specimen Format -Calculation of Cash Received from Operations - Illustrations - Solutions - Questions - Exercises.

(9) RATIO ANALYSIS 233 - 297Meaning and Definition of Analysis and Interpretations of Ratios; Principles of Ratio Selection -Advantages - Limitations of Ratio Analysis; Classification of Ratios - Liquidity Ratio; Current Ratio- Quick Ratio - Absolute Liquid Ratio; Profitability Ratio; Gross Profit Ratio - Operating Ratio -Operating Profit Ratio - Net Profit Ratio - Return on Investment Ratio - Return on CapitalEmployed Ratio - Earning per Share Ratio - Dividend Yield Ratio - Price Earning Ratio - Net Profitto Net Worth Ratio; Turnover Ratio; Stock Turnover Ratio - Debtors Turnover Ratio - DebtCollection Period Ratio - Creditor s Turnover Ratio - Average Payment Period - Working CapitalTurnover Ratio - Fixed Assets Turnover Ratio - Capital Turnover Ratio; Solvency Ratios; DebtEquity Ratio - Proprietary Ratio - Capital Gearing Ratio - Debt Service Ratio; Overall ProfitabilityRatio; Illustrations - Solutions - Questions - Practical Problems.

(10) COST ACCOUNTING 298 - 304Introduction - Definitions of Important Concepts - Cost - Cost Accounting - Cost Control - CostReduction - Cost Allocation - Cost Absorption - Cost Audit - Cost Unit - Cost Centre -


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Objectives of Cost Accounting - Difference between Financial Account and Cost Accounting -Management Accounting - Meaning - Cost Accounting Vs Management Accounting - Advantagesof Cost Accounting - Limitations of Cost Accounting - Installation of Cost Accounting System -Practical Difficulties in Installation of Costing System - Steps to Overcome - Questions.

(11) COST METHODS TECHNIQUES OF COST ACCOUNTINGAND CLASSIFICATION OF COST

305 - 309Introduction - Methods of Cost': Job Costing - Contract Costing - Cost Plus Contract - BatchCosting - Process Costing: Operation Costing - Output Costing - Multiple Costing - Technique ofCosting - Uniform Costing - Marginal Costing - Standard Costing - Historical Costing - AbsorptionCosting; Classification of Cost; On the basis of Nature - Functions - Variability - Normality -Controllability - Material- - Labour - Expenses - Production Cost - Administrative Cost - SellingCost - Distribution Cost - Normal Cost - Abnormal Cost - Fixed Cost - Variable Cost -Controllable Cost - Uncontrollable Cost - Sunk Cost - Opportunity Cost - Replacement Cost -Conversion Cost - Questions.

(12) COST SHEET ANALYSIS (OR) STATEMENT OF COST 310 - 325Introduction - Meaning - Elements of Cost - Direct Cost - Indirect Cost - Overheads - Prime Cost- Works Cost - Cost of Production - Cost of Sales - Importance of Cost Sheet - Specimen Formatof Cost Sheet - Preparation of Cost Sheet - Illustrations - Solutions - Questions - Practical Problems.

(13) MATERIAL COST CONTROL 326 - 331Meaning of Materials - Direct Materials - Indirect Materials - Material Control - Functions ofMaterials Control - Objectives of Stores Control - Essentials - Advantages; Materials PurchaseControl - Organization of Purchasing - Centralized Organization - Advantages - Disadvantages -Decentralized Purchasing - Purchase Manager - Qualities - Duties of Purchase Manager - Functionsof Purchase Department - Purchase Procedure - Bills of Materials - Purchase Requisition - Selectionof Suppliers - Purchase Orders - Goods Received Note - Inspection of Materials - Questions.

(14) MATERIALS - INVENTORY CONTROL 332 - 351Introduction - Store and Store keeping - Purpose of Store keeping - Functions of the Store keeper -Stores Layout - Types of Stores - Centralized Stores - Decentralized Stores - Combination of Both;Fixation of Stock levels - Minimum Stock Level - Maximum Stock Level - Danger Level - ReorderLevel - Calculations - Economic Order Quantity - Calculation EOQ - Illustrations - Solutions -ABC Analysis - Alphabetical Method - Numerical Alphabetical Method; Inventory System -Periodic Inventory System - Perpetual Inventory System - Continuous Stock Taking - Advantagesof Each System - Bin Card - Stores Ledger - Bin Card Vs Stores Ledger - Continuous Stock TakingVs Periodic Stock Taking - Material Stores Losses - Normal Loss - Abnormal Loss - InventoryTurnover Ratios - Illustrations - Solutions - Questions - Exercises.

(15) VALUATION OF MATERIALS ISSUES 352 - 367Introduction - Valuation of Total Cost of Material Purchased - Trade Discount - QuantityDiscount - Cash Discount - Materials Issue Procedure - Material Requisition - Bill of Materials;Methods of Materials Pricing Issues - First n First Out (FIFO) - Last n First Out (LIFO) - SpecificPrice Method - Base Stock Method - Highest n First Method (HIFO) - Periodic Simple AverageMethod - Periodic Weighted Average Method - Standard Price Method - Inflated Price Method -Market Price or Replacement Price Method - Illustrations - Solutions - Questions - PracticalProblems.


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16) LABOUR COST CONTROL 368 - 381Meaning - Types o Labour Cost - Direct Labour Cost - Indirect Labour Cost - Control o LabourCost - Technique - Organization for Control o Labour Cost - Personnel Department - Engineeringand Works Study Department - Method Study - Motion Study - Time Study - Job Analysis - JobEvaluation - Merit Rating - Job Evaluation Vs Merit Rating; Time Keeping Department - TimeKeeping - Objectives - Methods o Time Keeping - Manual Method - Disc Method - MechanicalMethod - Time Keeping Clocks - Dial Time Records - Key Record System; Time Booking -Objectives - Methods o Time Booking - Daily Time Sheet - Weekly Time Sheet - Job Cards -Combined Time and Job Card; Piece Work Card - Idle Time - Types - Normal Idle Time andAbnormal Idle Time - Accounting Treatment o Idle Time; Overtime - Meaning - Effect oOvertime - Accounting Treatment o Over Time - Control o Overtime - Casual Workers - Systemo Control - Out Workers; Pay Roll Department - Labour Turnover - Methods o Labour Tum over- Separation Method - Replacement Method - Flux Method - Illustrations - Solutions - Questions -Practical Problems.

17) LABOUR COST ACCOUNTING 382 - 401Introduction - Meaning - Objectives o an Ideal Wage System - Principles - Methods oRemuneration - Time Rate System - At Ordinary Levels - At High Wage Levels - Guaranteed TimeRates - Piece Rate System - Straight Piece Rate - Piece Rate With Guaranteed Time Rate;Differential Piece Rates - Taylor Differential Piece Rate System - Merrick Differential Piece RateSystem - Gantt Task and Bonus Plan - Bonus System or Incentive System; Individual Bonus Plan -Halsey Premium Plan - Halsey - Wire Premium Plan - Rowan Plan - Barth Variable Sharing Plan -Emerson Efficiency Plan - Bedaux Point Premium System - Accelerating Premium Plan; GroupIncentive Plan - Indirect Monetary Incentives - Non-Monetary Incentives - Illustrations - Solutions- Questions - Practical Problems.

18) OVERHEADS 402 - 424Meaning and Definitions o Overheads - Importance o Overheads - Classification o Overheads -Indirect Materials Cost - Indirect Labour Cost - Indirect Expenses - Production Overhead -Administration Overhead - Selling Overhead - Distribution Overhead - Fixed Overhead - VariableOverhead - Useful o Overhead Classification; Codification o Overhead - Advantages o Codification- Procedure or Steps in Overhead - Collection o Overhead - Overhead Expenses - Sources andDocuments Used - Overhead Analysis - Allocation and Absorption - Apportionment o Overhead -Basis o Apportionment - Illustrations - Solutions - Reapportionment or Redistribution o Overhead- Method o Re-apportionment - Direct Re-distribution Method - Step Distribution Method -Reciprocal Service Method - Step Repeated Distribution Method - Simultaneous Equitation Method- Trial and Error Method - Illustrations o Each Methods - Solutions - Questions - PracticalProblems.

19) ABSORPTION OF O V E ~ H E D 425 - 446Meaning - Overhead Rate - Actual Overhead Rate - Pre-Determined Overhead Rate - BlanketOverhead Rate - MUltjple Overhead Rate - Normal Overhead Rate - Supplementary Overhead Rate;Methods o Absorption o Overhead - Direct Material Cost Method - Direct Labour Cost Method -Direct Labour Hours Method - Prime Cost Method - Unit Output Method - Machine Hour Rate;Calculation o Machine Hour Rate - Fixed or Standing Charges - Variable Machine Expenses -Basis for Apportionment o Machine Expenses - Advantages - Disadvantages - Illustrations -Solutions -- Questions - Practical Problems.


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20) JOB, BATCH AND PROCESS COSTING 447 - 470Introduction - Meaning - Features of Job Order Costing - Objectives of Job Order Costing - Prerequisite for Job Order Costing - Advantages and Disadvantages of Job Order Costing -Procedure for Job Order Cost System; Batch Costing - Meaning - Features - Determeniation -Diffemece between Job Costing and Batch Costing - Advantages and Disadvantages - Problems andSolutions; Process Costing - Meaning - Application of Process Costing - Job Costing Vs ProcessCosting - Calculation of Normal Process Loss and Abnormal Process Loss - Procedure forPreparation of Process Costing - Illustrations - Solutions - Questions - Practical Problems.

21) JOINT PRODUCT AND BY-PRODUCT 471 - 490Introduction - Joint Products - Me


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Costing - Cost - Volume Profit Analysis - Meaning - Objectives - Marginal Cost Equations -Contribution - Break Even Analysis - Profit Volume Ratio PN Ratio - Margin of Safety - BreakEven Chart - Cash Break Even Point - Advantages - Limitations - Illustrations - Solutions -Questions - Practical Problems.

27) BUDGETING AND BUDGETARY CONTROL 561 596Introduction - Definition of Budget - Essentials of Budget - Difference between Forecast andBudgets - Budgetary Control Objectives of Budgetary Control Scope and Techniques of StandardCosting and Budgetary Control - Requisites for effective Budgetary Control - Organization forBudgetary Control - Organization Chart - Budget Centre - Budget Officer - Budget Committee -Budget Manual - Budget Period - Key Factors - Advantages of Budgetary Control - Limitations ofBudgetary Control; Types of Budgets Control Ratios - Capacity Ratio - Activity Ratio - EfficiencyRatio - Calendar Ratio; Some Important Budgets - Sales Budgets - Production Budget - MaterialPurchase Budget - Cash Budget - Master Budget - Fixed Budget - Flexible Budget - Advantages -Fixed Budgets Vs Flexible Budgets - Methods of Preparing Flexible Budget - Multi - ActivityMethod - Ratio Method - Charting Method - Illustrations - Solutions - Zero Base Budgeting -Questions - Practical Problems.28) STANDARD COSTING AND VARIANCE ANALYSIS 597 641Introduction - Standard Cost and Standard Costing - Meaning - Standard Costing and BudgetaryControl - Preliminaries to the establishment of Standard Costs: Advantages and Disadvantages ofStandard Costing, Analysis of Variances - Material Variances - Calculation of Material PriceVariances, Material Usage Variances, Material Mix Variance; Labour Variance; Overhead Variance -Overhead Cost Variance - Fixed Overhead Variances - Sales Variances - Illustrations - Solutions -Questions - Practical Problems.

29) CAPITAL BUDGETING 642 669Capital Budging - Meaning - Definition - Importance - Objectives - Principles or Factors of CapitalBudgeting Decisions - Capital Budgeting Process - Types of Capital Expenditure - Types of CapitalBudgeting Proposals - Methods of Evaluating Capital Investment Proposals - Traditional Methods -Pay-back Period Method - Post Pay - Back Period - Discounted Pay-back Period - Reciprocal PayBack Period - Accounting Rate of Return Method - Time Adjusted Method - Net Present ValueMethod - Internal Rate of Return Method - Profitability Index Method - JIIustrations - Solutions -Questions - Multiple Choice Question and Answers - Practical Problems.

30) COST AUDIT 670 674Cost Audit - Meaning and Definition - Difference between Financial Audit and Cost Audit Purposesor Objectives of Cost Audit - Protective Purpose - Constructive Purpose - Circumstances UnderWhich Cost Audit is Desirable - Types of Cost Audit - Efficiency Audit - Propriety Audit -Statutory Audit - Advantages or Usefulness of Cost Audit - Usefulness to the Management - o theGovernment - o the Shareholders; Cost Audit Programme - Areas of Cost Audit Programme iscarried out - Advantages - Disadvantages - Cost Accounts Records Questions.

31) REPORTING TO MANAGEMENT 675 681Introduction - Definition of Management Reporting - Objectives of Management Reporting -Essentials of Good Reporting System - Classification of Management Reporting - According toObjectives, Period, Functions - Report Meant for the Top Level of Management, Middle LevelManagement and Junior Level Management - Questions.

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