1bdd8accounting for management - final exam hints

8/2/2019 1bdd8Accounting for Management - Final Exam Hints

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REVISION HINTS-MBA101

Module I : Accounting Basics

Introduction/Foundations Mostly theory questions. Learn definitions of accounting, origins of accounting. This would largely be a THEORY Question .

Accounting policies various accounting concepts such as accounting concept, matching concept.. again you

may be required to provide short notes where you could provide definitions. Giveexamples if you cannot provide correct definitions .

This would largely be a THEORY Question

Accounting and management control you may be asked to required to provide a link between accounting and management

control. You should be able to define the two concepts separately and where possiblegive examples.


Branches of accounting you may be required to define Management Accounting, Financial Accounting, Cost

Accounting. Provide examples as to what each involves and where its applied. This would largely be a THEORY Question

Recording of transactions and classification/Trial Balance & Errors Basically, this is BCom activity and MBA students would NOT be required to prepare

Trial balance. I have said earlier that as managers, you do not have to be an Accountantto make financial decisions. So knowing how a trial balance looks like is all it takes.

This would largely be a PRACTICAL Question

Cash book Again this is BCom stuff which is irrelevant for MBA. You just need to know what is a Cash

Book, which basically is a detail of your cash records(receipts) and (payments). Managers are not required to prepare Cashbook. This would largely be a THEORY Question


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Bank reconciliation statement.

As in above, probably you would never be tested and you should not be tested on this asthis is not what managers do, but what clerks do.however, you have been told what is abank rec and how it operates and what is its purpose. Able to define it is necessary.


Module II : Final Accounts

Preparation/ Adjustments/ Analysis Here you may be required to prepare Final Accounts such as Trading account, Profit and

Loss account and or Balance Sheet. Again this is NOT what managers do and should NEVER be taught at MBA level. Its

understood that managers would have had some knowledge in accounting in school days. Istrongly believe that every student who intends to study for MBA should do a 3-monthrefresher course in accounting prior to commencement of their MBA studies.

Students should practice questions in Final accounts preparation. During exams, answer what you know, give a guess, but write something. NO marks for

leaving BLANK pages This would largely be a PRACTICAL Question

Depreciation Accounting Again something which accountants do but NEVER managers. Well knowing the types of

depreciation (straight line/reducing value/ units of use) is ok. No need to know the entiremethods.. You may be required to compute depreciation using one method, normallystraight line.

Do not panic, you may just write the formula.only. Give a guess. Those who studiedaccounting in school and in graduation should have the edge over others.


Reserves & Provisions Knowing its definitions and purpose is all that is needed. You can quote examples of reserves and provisions from notes given in class



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Form and contents of financial statements with reference to Indian Companies Act.

Basically talks about how financial statements are prepared.

The rest of the world prepares the Financial statements a bit differently then Indian

firms, however, if they have to trade with these MNCs, they have to prepare finalaccounts as per the required standards.


Module III : Financial Statement Analysis

Relation and Comparison of Accounting data and using financial statement information, Deals with preparing Final accounts in comparative format and also showing Trend

analysis. Need to know how it is drawn and what it means. Give a guess if in doubt. but make sure to attempt.


Ratio Analysis Must know the key ratios and their formulas. Should be able to use in application Should be able to interpret(explain) the end result of these ratios Give a guess, provide opinions. Must have a calculator for computations


Fund flow You may be required to prepare either: 1) Statement of Changes in Working Capital,

2)Adjusted Profit and Loss Account or 3) Funds Flow Statement. Item (1) should be very easy to make as it only involves identifying current assets and

current liabilities. You had ample practice with this type of question. In Item(2), you may have difficulties but give your best shot. Have a look at several

practice questions given and or solved examples in this area. For Item(3), you need to be aware of the Sources and Uses of Funds. Check the solved

examples and PPTs given on Amizone. Worst case scenario, do your best.


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Cash flow analysis. You should have had done some account in school which should solve 50% of your

problem. A better understanding helps in learning more complex application at a higherlevel.

If no knowledge, just review solved examples in Text books and PPTs. Again, besidesdoing your best, guessing, you have no other option.. If you leave a blank answer sheet,NO MARKS would be awarded, so try your best.

Normally, if they ask a Cashflow qn, a funds flow is not asked and vice-versa. Raelythey ask both, and if they did, it would different parts.


Determination of Existing and future capital requirement.

Again this is a typical situation for managers where they have to decide on what is thebest action to be taken.

You may be required to provide your opinion on what is the correct step to be taken bymanagement.

What you can do is study the info provided and you decide as if you were the manager ofthe firm in question and how you would decide on the correct action to be taken. In doing

so you must make sure to provide your reasons to support your argument. NOTE: its not necessary that your answer would be correct, but marks would be given

(even if its wrong) on the basis of how you presented your case. So do not hesitate togive your opinion or guess on the corrective action.

This would largely be a PRACTICAL/THEORY Question

Module IV: Cost Accounting

Elements of cost Refer to the classroom discussion and notes.

Obviously you would have had some knowledge in school or graduation in accountingclasses. No. then it would be a UPHILL battle and no miracles exist.

You have to remember the types of Costs, examples. This would largely be a THEORY.PRACTICAL Question


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Cost Classification and Allocation Here you should be able to know whether a cost item is Fixed, Variable, Fixed, Mixed,

Overhead etc? Still if you are lost, do not look perplexed, just guess. If you had NOT studied Accounting in school and Graduation, its tough luck..you do your best in yourFinal exam. Guess and keep guessing your answers and then write them, since you haveNOTHING to lose as NO NEGATIVE marks would be given for wrong answers.


Cost Sheet You have been shown what a Cost sheet looks like. It has the 3 major cost items; (1)

Direct Materials (2) Direct Labor (3) Factory Overheads. A classroom example had been given together with a worked example.


Method of Inventory Valuation.

Inventory valuation is a vast topic and involves theory and extensive practical questions. Relax!, no practical questions should be given as firstly the size of the Exam paper is

very small like a handkerchief so pointless to put large questions. You may be required to provide explanation of the types of inventory methods: LIFO,

FIFO, WAC. Write the definition and if in problem, then as in other questions give a guess, but DO

WRITE something anything. You may get some marks for partly correct answers. This would largely be THEORY question

Module V: Management Accounting

Emergence of Management Accounting,


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Here you would be asked largely theory question in regards to Management accounting. Most would be comfortable with theory so make sure you write like mad and include all

relevant details This would largely be a THEORY Question

Marginal Costing Here you may be required to compute :

o Selling Price of Unit(SP/unit)o Variable Cost per Unit (VC/unit)o Contribution Margin per Unit (CM/unit)o Fixed costs for the yearo Net Incomeo Break even point in units and Rupeeso Draw a CVP grapho Some theory regarding the use of the CVP grapho Margin of Safetyo Some theory regarding buying/making/or contracting outside to make a

product.o Re-computation of SP/VC/CM per unit , FC and Net Income, Break even point,

if there were any changes in the cost details This would largely be a PRACTICAL Question

Budgeting Here you may be required to define the types of budgets used by firms You should be able to describe and define the various types of budgets you know and its

purpose. You may be required to provide your views as a manager would and how budgets are used

in the firm. This would largely be a THEORY Question

Variance Analysis.


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Here you may be expected to calculate variance which is the difference between actualfigure and Budgeted(Standard) figures.

Refer to the notes and examples discussed in class You could define what is a variance but you should be able to do simple computations.


Module VI: Common Issues and recent trends in Accounting

Accounting for Investments Here you may get theory related questions regarding the investments of a firm. These

could be financial investments which would be expanded on in your next semester courseFinancial Management.

Again if you are unsure, you may provide definitions, examples of something you may havepicked up in class, or the best and the safest option would be to GUESS.


Payroll Accounting This is typically a BCom question and does not rightfully fall under MBA content. This topic generally deals about wages and salary preparation of employees. The following

activities are taken up;o Obtaining details of employeeso Wages and salary detailso Hours worked/overtime hours/rate of pay/bonus/o Computation of overtime and bonus pay, Gross Pay, Deductions and then NET

PAY. This would largely be a THEORY Question

Inflation Accounting Inflation accounting is a term describing a range of accounting systems designed to

correct problems arising from historical cost accounting in the presence of inflation .[

this definition is enough. In fact this topic has nothing to do with MBA and managers.This is something for the worry of accountants. You can provide a definition or guess your answer. This would largely be a THEORY Question

Pricing decisions
http://en.wikipedia.org/wiki/Historical_costhttp://en.wikipedia.org/wiki/Accountinghttp://en.wikipedia.org/wiki/Inflationhttp://en.wikipedia.org/wiki/Inflation_accounting#cite_note-0http://en.wikipedia.org/wiki/Inflation_accounting#cite_note-0http://en.wikipedia.org/wiki/Historical_costhttp://en.wikipedia.org/wiki/Accountinghttp://en.wikipedia.org/wiki/Inflationhttp://en.wikipedia.org/wiki/Inflation_accounting#cite_note-0


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Pricing Decisions

What do the following words have in common? Fare, dues, tuition, interest, rent, and fee. Theanswer is that each of these is a term used to describe what one must pay to acquire benefits fromanother party. More commonly, most people simply use the word price to indicate what it costs toacquire a product.

The pricing decision is a critical one for most marketers, yet the amount of attention given to thiskey area is often much less than is given to other marketing decisions. One reason for the lack of attention is that many believe price setting is a mechanical process requiring the marketer to utilizefinancial tools, such as spreadsheets, to build their case for setting price levels. While financialtools are widely used to assist in setting price, marketers must consider many other factors whenarriving at the price for which their product will sell.

In this part of our highly detailed Principles of Marketing Tutorials we begin a two-part discussion of the fourth marketing mix variable - price. For some marketers moretime is spent agonizing over price than any other marketing decision. In this tutorial we look atwhy price is important and what factors influence the pricing decision. (Ref: Wikipedia)

This would normally be theory if they gave a question. You could write definitions or guess your answers.


Activity Based Costing

Activity-based costing (ABC ) is a costing model that identifies activities in an organization and

assigns the cost of each activity resource to all products and services according to the actualconsumption by each: it assigns more indirect costs (overhead ) into direct costs .

In this way an organization can precisely estimate the cost of its individual products and servicesfor the purposes of identifying and eliminating those which are unprofitable and lowering the

prices of those which are overpriced.
http://www.knowthis.com/principles-of-marketing-tutorials/http://www.knowthis.com/principles-of-marketing-tutorials/http://en.wikipedia.org/wiki/Indirect_costshttp://en.wikipedia.org/wiki/Overhead_(business)http://en.wikipedia.org/wiki/Direct_costshttp://www.knowthis.com/principles-of-marketing-tutorials/http://en.wikipedia.org/wiki/Indirect_costshttp://en.wikipedia.org/wiki/Overhead_(business)http://en.wikipedia.org/wiki/Direct_costs


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In a business organization, the ABC methodology assigns an organization's resource costs throughactivities to the products and services provided to its customers. It is generally used as a tool for understanding product and customer cost and profitability. As such, ABC has predominantly beenused to support strategic decisions such as pricing, outsourcing, iden For example, one productmight take more time in one expensive machine than another product, but since the amount of

direct labor and materials might be the same, the additional cost for the use of the machine wouldnot be recognized when the same broad 'on-cost' percentage is added to all products. Consequently,when multiple products share common costs, there is a danger of one product subsidizinganothertification and measurement of process improvement initiatives.

Instead of using broad arbitrary percentages to allocate costs, ABC seeks to identify cause andeffect relationships to objectively assign costs. Once costs of the activities have been identified, thecost of each activity is attributed to each product to the extent that the product uses the activity. Inthis way ABC often identifies areas of high overhead costs per unit and so directs attention tofinding ways to reduce the costs or to charge more for costly products.


Responsibility Accounting.

Responsibility accounting is an underlying concept of accounting performancemeasurement systems. The basic idea is that large diversified organizations aredifficult, if not impossible to manage as a single segment, thus they must bedecentralized or separated into manageable parts. These parts, or segments arereferred to as responsibility centers that include: 1) revenue centers, 2) cost centers, 3)

profit centers and 4) investment centers. This approach allows responsibility to be

assigned to the segment managers that have the greatest amount of influence over thekey elements to be managed. These elements include revenue for a revenue center (asegment that mainly generates revenue with relatively little costs), costs for a costcenter (a segment that generates costs, but no revenue), a measure of profitability for a

profit center (a segment that generates both revenue and costs) and return oninvestment (ROI) for an investment center (a segment such as a division of a companywhere the manager controls the acquisition and utilization of assets, as well as revenueand costs).

Controllability Concept

An underlying concept of responsibility accounting is referred to as controllability.Conceptually, a manager should only be held responsible for those aspects of

performance that he or she can control. In my view, this concept is rarely, if ever,applied successfully in practice because of the system variation present in all systems.Attempts to apply the controllability concept produce responsibility reports where
http://en.wikipedia.org/wiki/Costhttp://en.wikipedia.org/wiki/Product_(business)http://en.wikipedia.org/wiki/Service_(economics)http://en.wikipedia.org/wiki/Costhttp://en.wikipedia.org/wiki/Product_(business)http://en.wikipedia.org/wiki/Service_(economics)


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each layer of management is held responsible for all subordinate management layersas illustrated below.

Advantages and Disadvantages

Responsibility accounting has been an accepted part of traditional accounting controlsystems for many years because it provides an organization with a number of advantages. Perhaps the most compelling argument for the responsibility accountingapproach is that it provides a way to manage an organization that would otherwise beunmanageable. In addition, assigning responsibility to lower level managers allows

higher level managers to pursue other activities such as long term planning and policymaking. It also provides a way to motivate lower level managers and workers.Managers and workers in an individualistic system tend to be motivated bymeasurements that emphasize their individual performances. However, this emphasison the performance of individuals and individual segments creates what some criticsrefer to as the "stovepipe organization." Others have used the term "functional silos"to describe the same idea. Consider 9-6 Exhibit below 1. Information flows vertically,
http://maaw.info/ResponsibilityAccountingConcept.htm#Footnote%201http://maaw.info/ResponsibilityAccountingConcept.htm#Footnote%201


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rather than horizontally. Individuals in the various segments and functional areas areseparated and tend to ignore the interdependencies within the organization. Segmentmanagers and individual workers within segments tend to compete to optimize their own performance measurements rather than working together to optimize the

performance of the system.

Summary and Controversial Question

An implicit assumption of responsibility accounting is that separating a company intoresponsibility centers that are controlled in a top down manner is the way to optimizethe system. However, this separation inevitably fails to consider many of theinterdependencies within the organization. Ignoring the interdependencies preventsteamwork and creates the need for buffers such as additional inventory, workers,managers and capacity. Of course, a system that prevents teamwork and createsexcess is inconsistent with the lean enterprise concepts of just-in-time and the theoryof constraints. For this reason, critics of traditional accounting control systems


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advocate managing the system as a whole to eliminate the need for buffers and excess.They also argue that companies need to develop process oriented learning supportsystems, not financial results, fear oriented control systems. The information systemneeds to reveal the company's problems and constraints in a timely manner and at adisaggregated level so that empowered users can identify how to correct problems,remove constraints and improve the process. According to these critics, accountingcontrol information does not qualify in any of these categories because it is not timely,disaggregated, or user friendly.

This harsh criticism of accounting control information leads us to a very importantcontroversial question. Can a company successfully implement just-in-time and other continuous improvement concepts while retaining a traditional responsibilityaccounting control system? Although the jury is still out on this question, a number of field research studies indicate that accounting based controls are playing a decreasingrole in companies that adopt the lean enterprise concepts. In a recent study involvingnine companies, each company answered this controversial question in a different way

by using a different mix of process oriented versus results oriented learning andcontrol information. 2 Since each company is different, a generalized answer to thisquestion for all firms in all situations cannot be provided. (Ref: Wikipedia)

http://maaw.info/ResponsibilityAccountingConcept.htm#Footnote%202http://maaw.info/ResponsibilityAccountingConcept.htm#Footnote%202

1bdd8accounting for management - final exam hints

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