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Dear Students, Please attempt all the assignment questions given in this leaflet/booklet and submit it to the Coordinator of the study center, you are attached with, on or before 31st October, 2009. MS-04: ACCOUNTING AND FINANCE FOR MANAGERS ASSIGNMENT Course Code : MS-04 Course Title : Accounting and Finances for Managers Assignment Code : MS-04/TMA/SEM-II/2009 Coverage : All Blocks Note : Please attempt all questions and send them to the Coordinator of the study centre you are attached with. Q
  Dear Students,Please attempt all the assignment questions given in this leaflet/booklet and submit it to theCoordinator of the study center, you are attached with, on or before 31 st October, 2009 . MS-04: ACCOUNTING AND FINANCE FOR MANAGERSASSIGNMENTCourse Code:MS-04Course Title:Accounting and Finances for ManagersAssignment Code:MS-04/TMA/SEM-II/2009Coverage:All BlocksNote : Please attempt all questions and send them to the Coordinator of the study centre you areattached with.Q1. What do you mean by ‘accounting’? Explain the various concepts of accounting and theneed for having accounting standards? “Accounting is the art of recording, classifying and summarizing in the significant manner and in terms of money, transaction and events which are in the part at least of a financialcharacter and interpreting the result thereof.”As per the definition accounting and bookkeeping is the simple art of record keeping.Every good record keeping system including classification transaction and event as well astheir summarization for ready reference. Essentially the transaction and event are to bemeasured in the terms of money. Measurement in the terms of money means measuring atthe ruling currency of county like rupees in India, Dollar in U.S.AThe transaction and events must have at least in part financial characteristics. Theinauguration of new branches of a bank is an event without having financial character,while the business disposed of by the branch is an event having financial character.Accounting and Bookkeeping also interprets the recorded classified and summarizedtransaction and events.However the above mention definition does not reflect the present day accounting function.The dimension of accounting and bookkeeping is much broader then that described in theabove definition. A widely accepted definition is accounting is given by the AmericanAccounting Association in 1966 which treated accounting as “The process of identifying,measuring and communicating economic information to permit informed judgments anddecision by users as accounts.”  An examination of the various elements of the definition shows the role of accountingalthough many of its implements may become clear as the course advances.1) There are curtains users of accounts. Earlier it was viewed that accounting is for theowner of the business but change social relationship diluted the earlier thanking. It is now believed that users of accounts includes, employee, ledgers, suppliers and other tradecreditors, customers, government and other agencies and the public at large.2) The users need data for judgment and decisions.3) Accounting is a process of identifying users information requirement as also generating,recording and communicating such information to users. It also a common measurementunit e.g.: money. Accounting provides the art of presenting information systematically tothe users of accounts.Information is useless and meaningless unless it is relevant and material to a user’sdecision. The information should be free of any biases. The users should understand motonly the financial results depicted by accounting figures but also should be able to accessits reliability and compare it which information about attractive opportunity and the pastexperience. Accounting data is more useful if it stresses economic substance rather thantechnical form. Accounting concept and conventions In drawing up accounting statements, whether they are external financial accounts or internally-focused management accounts , a clear objective has to be that the accountsfairly reflect the true substance of the business and the results of its operation.The theory of accounting has, therefore, developed the concept of a true and fair view .The true and fair view is applied in ensuring and assessing whether accounts do indeed portray accurately the business' activities.To support the application of the true and fair view , accounting has adopted certainconcepts and conventions which help to ensure that accounting information is presentedaccurately and consistently. Accounting Conventions The most commonly encountered convention is the historical cost convention . Thisrequires transactions to be recorded at the price ruling at the time, and for assets to bevalued at their srcinal cost.Under the historical cost convention , therefore, no account is taken of changing prices inthe economy.  The other conventions you will encounter in a set of accounts can be summarised asfollows: Monetarymeasurement Accountants do not account for items unless they can be quantified inmonetary terms. Items that are not accounted for (unless someone is prepared to pay something for them) include things like workforce skill,morale, market leadership, brand recognition, quality of management etc. Separate Entity This convention seeks to ensure that private transactions and mattersrelating to the owners of a business are segregated from transactions thatrelate to the business. Realisation With this convention, accounts recognise transactions (and any profitsarising from them) at the point of sale or transfer of legal ownership -rather than just when cash actually changes hands. For example, acompany that makes a sale to a customer can recognise that sale when thetransaction is legal - at the point of contract. The actual payment due fromthe customer may not arise until several weeks (or months) later - if thecustomer has been granted some credit terms. Materiality An important convention. As we can see from the application of accounting standards and accounting policies, the preparation of accountsinvolves a high degree of judgement. Where decisions are required aboutthe appropriateness of a particular accounting judgement, the materiality convention suggests that this should only be an issue if the judgement is significant or material to a user of the accounts. Theconcept of materiality is an important issue for auditors of financialaccounts. Accounting Concepts Four important accounting concepts underpin the preparation of any set of accounts: Going Concern Accountants assume, unless there is evidence to the contrary, that acompany is not going broke. This has important implications for thevaluation of assets and liabilities. Consistency Transactions and valuation methods are treated the same way from year toyear, or period to period. Users of accounts can, therefore, make moremeaningful comparisons of financial performance from year to year.Where accounting policies are changed, companies are required to disclosethis fact and explain the impact of any change. Prudence Profits are not recognised until a sale has been completed. In addition, acautious view is taken for future problems and costs of the business (theare provided for in the accounts as soon as their is a reasonable chancethat such costs will be incurred in the future. Matching (or Accruals ) Income should be properly matched with the expenses of a givenaccounting period.  Key Characteristics of Accounting Information There is general agreement that, before it can be regarded as useful in satisfying the needsof various user groups, accounting information should satisfy the following criteria: CriteriaWhat it means for the preparation of accounting information   Understandability This implies the expression, with clarity, of accounting information insuch a way that it will be understandable to users - who are generallyassumed to have a reasonable knowledge of business and economicactivities  Relevance This implies that, to be useful, accounting information must assist a user to form, confirm or maybe revise a view - usually in the context of making a decision (e.g. should I invest, should I lend money to this business? Should I work for this business?) Consistency This implies consistent treatment of similar items and application of accounting policies Comparability This implies the ability for users to be able to compare similar companies in the same industry group and to make comparisons of  performance over time. Much of the work that goes into settingaccounting standards is based around the need for comparability.  Reliability This implies that the accounting information that is presented is truthful,accurate, complete (nothing significant missed out) and capable of beingverified (e.g. by a potential investor). Objectivity This implies that accounting information is prepared and reported in a neutral way. In other words, it is not biased towards a particular user group or vested interest Accounting standards are needed so that financial statements will fairly and consistently describefinancial performance. Without standards, users of financial statements would need to learn theaccounting rules of each company, and comparisons between companies would be difficult.Accounting standards used today are referred to as Generally Accepted Accounting Principles(GAAP). These principles are generally accepted because an authoritative body has set them or theaccounting profession widely accepts them as appropriate. The transition around the world to International Financial Reporting Standards (IFRS) -which were formerly known as International Accounting Standards (IAS) - is the mostimportant development ever seen in the world of accounting. Q2. The balance sheets of ABC Ltd. as on 31-3-2008 and 31-3-2007 are as given below:
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