ACCOUNTING FOR MANAGEMENT

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2 ACCOUNTING FOR MANAGEMENT

3 ACCOUNTING FOR MANAGEMENT For B.Com., B.Com. (CA), BBA., BBM., M.Com., M.Com. (CA), MBA, MCA, Courses of all Indian Universities and Commerce, Management Courses of Periyar University. Dr.. V.R..R. PALANIVELU M.Com., MBA, M.Phil., Ph.D., Reader Periyar Institute of Management Studies (PRIMS) Periyar University Salem, Tamil Nadu UNIVERSITY SCIENCE PRESS (An Imprint of Laxmi Publications Pvt. Ltd.) BANGALORE CHENNAI COCHIN GUWAHATI HYDERABAD JALANDHAR KOLKATA LUCKNOW MUMBAI RANCHI NEW DELHI BOSTON, USA

4 Copyright 2013 by Laxmi Publications Pvt. Ltd. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise without the prior written permission of the publisher. Published by : UNIVERSITY SCIENCE PRESS (An Imprint of Laxmi Publications Pvt. Ltd.) 113, Golden House, Daryaganj, New Delhi Phone : Fax : info@laxmipublications.com Price : ` Only. First Edition : 2007 Second Edition : 2009 Third Edition : 2013 OFFICES Bangalore Chennai Cochin , Guwahati , Hyderabad Jalandhar Kolkata Lucknow Mumbai , Ranchi , 64, UAM ACCOUNTING FOR MANAGEMENT Typeset at : ABRO Enterprises, Delhi. C 1925/10/08 Printed at : Akashdeep Enterprise, Delhi.

5 ACKNOWLEDGEMENT I would like to extend my gratitude to my parent Institution Periyar Institute of Management Studies (PRIMS) Periyar University Salem Providing great academic and infrastructural support. I would like to express my whole hearted thanks to the Vice Chancellor of Periyar University Prof. Dr. K. Muthuchelian without whose approval and encouragement, I would not have been complete this revised work. I am grateful to Dr. S. Gunasekaran, Registrar, Periyar University and Dr. N. Rajendhiran Prof-Cum-Director PRIMS Periyar University Salem, for their support and motivation for this revised edition. I would like to thank Prof. Dr. M. Karunanithi Chairman and Secretary, Vivekanandha Educational Institutions, Tiruchengode, Dr. P. Vikkraman Director (I/c) Anna University of Technology Coimbatore, my Research Supervisor Dr. A. Jayakumar, Periyar University, Salem, Dr. M. Ravichandran, Faculty, Department of Management Studies, Anna University of Technology, Trichy and Dr. G.Vadivalagan, Chairman, Faculty of Management Studies, Anna University of Technology, Trichy for their continuous Support and guidance for the completion of this revised edition. I would like to thank my colleagues faculty members and countless students from various institutions for their encouragement and suitable suggestions for this revised edition. The second revised edition would not been easy task without the emotional and psychological encouragement from my wife Sasikala and daughter, Kavina son Kowranth. Several thanks for their Support. I would like to thank my parents G. Rangasamy, Pappayee and family members Ravindran, Balasundran, Senna Krishnan for their moral support for completion of this work. At the time of preparing this revised edition, I have been assisted by my Research Scholars Srividhya, Sankar Ganesh and Manavazhagan. Thanks for there continues work. I record my gratitude to our publisher Laxmi Publications (P) Ltd., its Managing Director Saurabh Gupta and his team of Editors, Production personnels, Designers, Marketing specialists and sales representatives who ensured that this book got into the hands of students and faculty in record time. Author (v )

6 PREFACE TO THE FIRST EDITION Accounting is very much essential for successful operations of all business concerns. Accounting information provides valuable guidance to the management specifically for the decision-making activities. Anna University has introduced MBA and MCA courses. It has rightly incorporated one paper on Financial and Management Accounting in the first semester of this course. This book has been specifically designed for the students of MBA and MCA courses according to the revised syllabus. And it is also helpful to the beginners of accounting. Everywhere, the principles of Accountancy are the same in all walks of life. But, there are differences of opinion as to the suitable methods of incorporating these principles. This book is also helpful for non-accounting students as it provides simplified methods for the preparation of accounts in a lucid manner which will enable them to acquire sufficient theoretical and practical knowledge. The foremost aim of introducing this book is to facilitate understanding of the matter at one reading without any strain in grasping the theories and illustrations. The book consists of four parts viz., financial accounting, cost accounting, management accounting and financial management. For the benefit of the students, nearly 250 problems have been collected from various university question papers. All the problems are worked out in a very simple method. For example, in the fund flow analysis, the increase or decrease in working capital is found out only on net result and not from item-wise comparison. In this way, problems in all the chapters are worked out in a short cut and easy method. For the simplification of all the chapters, procedures and/or formulas have been incorporated at appropriate places. Generally, MBA, MCA students feel accounting is a difficult subject, but the readers of this book will realize that it is not so. At the same time, I do not claim any originality, but I have taken much pain to present the subject in simple and systematic manner. It is the outcome of my teaching experience in this subject for several years. This book is useful not only for the management and commerce students but also more helpful to the students of BE courses of various branches of Anna University. I have made serious efforts to remove the printing mistakes of the book. Apart from my serious efforts, if the reader finds any error, he is requested to convey the same to me. I believe that both the students and teachers will find the book very useful. I will be very happy in receiving constructive criticism and appropriate suggestions for improving the quality of presentation and standard of the book in the next edition. I feel it is a great opportunity to construct the new edition of Accounting for Management book for the commerce and non-commerce students of MBA, MCA courses. Author (vi )

7 PREFACE TO THE THIRD EDITION Ihave great pleasure in bringing out the third revised edition of this Accounting for Management book after giving due weightage to the suggestions made by our esteemed readers. I am grateful to the readers for giving a wholehearted and continuous support to the second edition of our book. All the chapters of this book have been completely revised and is now incorporating a lot of new problems taken for the recent professional and various University examinations. These new problems are worked out clearly. As per the request of the students, Readers and Professors from various Institutions, number of University examination problems is incorporated at the end of the each chapter as Students exercise. This book has now been augmented by new chapter on Computerized Accounting. I am sure that the above aspect will make this book an invaluable asset for the student community of B.Com; BBA; BBM; M.Com; MBA; MCA; courses of all Indian Universities and CA (Inter), CS (Inter), ICWA (Inter), Post Graduate Diploma in Business, Management courses of professional and Management Institutes of India. I am delighted to acknowledge the valuable suggestions from the students and professors of various colleges and these suggestions have been duly incorporated in the present revised third edition. I have made serious efforts to remove all the printing errors found in the second edition. Even then, if the readers come across any error he/she is pleased to point out the same to us. Any criticism or suggestions for improving the quality of the book will be greatly acknowledged and highly appreciated. Author (vii )

8 PERIYAR UNIVERSITY Salem , Tamil Nadu, India. Prof. K. MUTHUCHELIAN, Ph.D., D.Sc., FNABS., FIEF (Canada) Date : 03 Nov 2010 Vice Chancellor FOREWORD Iam immensely impressed by this exemplary work, Accounting for Management authored by Dr. V.R. Palanivelu. I appreciate his painstaking efforts in bringing out the book as a thoroughly revised third edition. The book contains 28 chapters with large quantum of solved problems and a number of unsolved problems for the students exercise. A careful consideration has been paid while framing of its contents, and it is written in simple language. In his rich experience of teaching accountancy, he has constructed this book It will be more useful in addition to the existing large number of accountancy books. I strongly recommend this book and it is more suited to the students of commerce and management courses of all Indian Universities. A few copiesl of this book can be made available in libraries of all Engineering and Arts and Science Colleges and it will be more beneficial to the faculties and student communities at large. I congratulate the author for completing this task and wish him success. [K. Muthuchelian] (viii )

9 CONTENTS Chapters Pages Acknowledgement... (v) Preface to the First Edition... (vi) Preface to the Third Edition... (vii) Foreword... (viii) SECTION I : FINANCIAL ACCOUNTING 1. Introduction to Accounting Basic Records Maintained by a Business Concern Revenue Recognition and Measurement Preparation of Final Accounts Fund Flow Statement Cash Flow Statement Ratio Analysis Fixed Assets and Depreciation SECTION II : COST ACCOUNTING 9. Cost Accounting: Cost Sheet, Accounting for Manufacturing Cost Job Costing Process Costing Activity Based Costing Inventory Pricing and Valuation Standard Costing SECTION III : MANAGEMENT ACCOUNTING 15. Management Accounting Marginal Costing Relevant Cost for Decision Making Budget and Budgetary Control Inflation Accounting Human Resources Accounting Responsibility Accounting SECTION IV : FINANCIAL MANAGEMENT 22. Financial Management Dividend Cost of Capital Capital Structure Working Capital Capital Budgeting QUESTION PAPERS APPENDIX INDEX (ix)

10 ACCOUNTING FOR MANAGEMENT THEORY, TECHNIQUES, PROBLEMS & SOLUTIONS S. No. CONTENTS OF THE BOOK Sub. Code Sub. Code 1. Introduction about the Accounting BA1606 MC Basic Records Maintained by a Business Concern BA1606 MC Revenue Recognition and Measurement BA Preparation of Final Accounts BA1606 MC Fund Flow Statement BA1606 MC Cash Flow Statement BA1606 MC Ratio Analysis BA1606 MC Fixed Assets and Depreciation BA Cost Accounting: Cost Sheet Accounting for Manufacturing Cost BA1606 MC Job Costing BA Process Costing BA Activity Based Costing BA Inventory Pricing and Valuation BA Standard Costing BA1606 MC Management Accounting BA1606 MC Marginal Costing BA1606 MC Relevant Cost for Decision Making BA Budget and Budgetary Control BA1606 MC Inflation Accounting BA Human Resources Accounting BA Responsibility Accounting BA Financial Management MC Dividend MC Cost of Capital MC Capital Structure MC Working Capital MC Capital Budgeting MC 1605 S. No. Subject code Name of the paper Course covered 1. BA 1606 Accounting for management MBA I Semester 2. MC 1605 Accounting and financial management MCA I Semester (x )

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