ASSIGNMENT

Course Code : MMPC-004

Course Title : Accounting for Managers
Assignment Code : MMPC-004/TMA/JULY/2022
Coverage : All Blocks

Note: Attempt all the questions and submit this assignment to the coordinator of your study
centre. (Last date of submission for July 2022 session is 31st October, 2022 and for January
2023 session is 30th April, 2023).

1. Explain the following accounting concepts

(a) Business Entity concept

According to this concept, the task of measuring income and wealth is undertaken by accounting, for
an identifiable unit or entity. The unit or entity so identified is treated different and distinct from its
owners or contributors. In law, the distinction between owners and the business is drawn only in case
of joint stock companies but in accounting this distinction is made in the case of sole proprietor and
partnership firm as well. For example, goods used from the stock of the business for business purposes
are treated as business expenditure but similar goods used by the proprietor i.e. owner for his personal
use are treated as his drawings. Such distinction between the owner and the business unit has helped
accounting in reporting profitability more objectivity and fairly. It has also lead to the development if
“responsibility accounting” which enables us to find out the profitability of even the different sub
units of the main business.

(b) Money measurement concept

All the business transactions are measured and settled in monetary terms. Money is a common
denominator. It is used to measure assets, liabilities, expenses, losses, incomes etc. Money is a
medium to value the quantities.
The money measurement concept holds that the transactions and events, howsoever important they
may be, which cannot be measured in monetary terms are not recorded in accounting. The skill,
experience and honesty of a chairman or a manager; employer and employee cordial relations; profit
yielding sales promotion policy, etc. are not recorded in the books of accounts. Moreover, money does
not provide a stable measurement basis because it is influenced by inflation or deflation in the
economy which render which render the accounting date less useful.
 (c) Continuity concept

In the ordinary course, accounting assumes that the business will continue to exit and carry on its
operating for an indefinite period in the future. The entity is assumed to remain in operation
sufficiently long to carry out its objects and plans. The values attached to the assets will be on the
basis of its current worth. The assumption is that the fixed assets are not intended for re-sale.
Therefore, it may be contented that the balance sheet which is prepared on the basis record of facts on
historical costs can not show the true or real worth of the concern at a particular data. The underlying
principle there is that the earning power and not the cost is the basis for valuing a continuing business.
The business is to continue indefinitely and the financial and accounting policies are followed to
maintain the continuity of the business unit.

(d) Accrual concept

Accounting attempts to recognize non-cash events and circumstances as they occur. Accrual is concerned
with expected future cash receipts and payments. It is the accounting process of recognizing assets, liabilities
or income from amounts expected to the received or paid credit, interest, rent (not yet paid), wages and
salaries outstanding, taxes outstanding. Thus, we make record of all expenses and incomes relating to the
accounting period whether actual cash has been disbursed or received or not.

2. Explain the following

(a) Marginal Costing

Marginal cost is the cost of one additional unit of output. The concept is used to determine the optimum
production quantity for a company, where it costs the least amount to produce additional units. It is
calculated by dividing the change in manufacturing costs by the change in the quantity produced. It can
maximize its profits. The concept is also used to determine product pricing when customers request the
lowest possible price for certain orders.

Marginal cost= change in total cost/ change in Quantity

MC= C/ Q
MC= Marginal cost
C= change in cost

Q= change in quantity

(b) Activity Based Costing

Activity based costing (ABC) is a method of assigning overhead and indirect costs- such as salaries and
utilities-to products and services. The ABC system of cost accounting is based on activities, which are
considered any event, unit of work, or task with a specific goal. An activity is a cost-driver, such as purchase
orders or machine setups. The cost driver rate, which is the cost pool total divided by cost driver, is used to
calculate the amount of overhead and indirect costs related to a particular activity. It is used to get a better
grasp on costs, allowing companies to form a more appropriate pricing strategy. This costing system is used
in target costing, product costing, product line profitability analysis, customer profitability analysis, and
service pricing. Activity based costing is used to get a better grasp on costs, allowing companies to form a
more appropriate pricing strategy.

3. What is CVP analysis? Does it differ from break even analysis? How is break-even point
calculated?

Cost Volume profit analysis (CVP) is a method in cost accounting. It looks at the impact on the
operating profit due to the varying levels of volume and the costs and determines a break even
point for cost structures with different sales volumes that will help managers in making
economic decisions for short term. The analysis is based on the classification of expenses as
variable or fixed. Accordingly, operating income is defined as follows

Operating Income= Sales - Variable Costs – Fixed Costs

It includes the analysis of sales price, fixed costs, variable costs, the number of goods sold, and
how it affects the profit of the business. It helps management in finding out the relationship
between cost and revenue to generate profit. It also helps in understanding the relationship
between profits and costs and determining the level of sales to reach a targeted income.

Cost Volume profit analysis is different from break even analysis. Break even analysis is an
application of CVP analysis. Break even analysis enables a firm to determine the output level
that needs to be produced so as to meet all the fixed and variable costs. This output level (where
profit+)) is referred to as the Break even point as is computed as follows:

Break Even Point(Units) = Fixed Costs/ unit contribution margins

Break even point is therefore the sales volume at which there is no profit or loss. It is therefore a
static concept because operating at the BEP is not the goal of managers; they may question the
benefit of break even analysis. On the other hand CVP is a wider and dynamic concept as it
considers the sales volume necessary to earn a desired profit before and after tax.

Breakeven point (Sales Value) = Fixed Costs/ Contributions Margin Ratio

Total revenue Total cost

Profit

CVP Variable cost

Sales Analysis

Fixed cost
Loss

Units
 4. Explain in detail the various contents of an Annual Report.

Annual report is a financial summary that businesses provide to shareholders or potential investors with
information about company‟s operations and financial performance. These reports are comprehensive
documents designed to provide readers with information about performance of the business in the proceeding
year. It contains information such as performance highlights, a letter from CEO, financial information and
objectives and goals for future years. There are many users of annual reports including shareholders,
potential investors, employees and customers.

Ht contents of an annual report will vary from business to business but most annual reports will generally
contain the following

1. A letter from the president or CEO

2. Performance highlights from the preceding year.
3. Financial statements
4. Performance and outlook for future years.
5. Format

1. Letter from the CEO

The letter from the CEO is addressed to shareholders and provides a summary of the company‟s
performance in the previous year. CEOs typically spend a lot of time on their letters to highlight the
company‟s achievements as its performance is relative to the industry it operates in. The letter would
likely mention the information of interest to shareholders since they are the primary readers of the
report.

2. Performance Highlights
Annual reports usually dedicate a section to highlighting some of the company‟s key achievements
such as special initiatives, goals reached or awards received by the company or its employees. The
main goal of the section is to ensure that shareholders are satisfied with their investment in the
company and persuade potential investors to do the same.

3. Financial statements
Financial statements are a key component of the annual report and helps users in knowing the financial
position of the business. It helps us in ascertaining the trading result, i.e the result of business operation. It
includes the following
a. Trading account
It is a nominal account which is debited with all direct expenses and credited with all direct incomes.
It shows gross profit or gross loss.

b. Profit and loss account

It is nominal account which is debited with all indirect expenses and credited with all indirect
incomes. It shows net profit or net loss.

c. Balance sheet
It is statement in which assets are recorded in the right side and laibilties and capital are recorded on
the left side. In other words it is the balance of accounting equation which is
Assets= liabilities + Capital

4. Outlook for future years

Annual reports typically include information regarding its future performance in order to provide
shareholders with information on the future goals and objectives of the business. The investors are able to
get information about current position and future growth of business. It also includes strategy of business
in the coming years.

5. Format
While hardcopy annual reports are still common, e-versions are increasingly popular and can be found on the
websites of the organization. E-versions has made reports accessible to larger audience.

5. From the following calculate cash from operations:

Profit and Loss Account for the year ended 31st March, 2022
Particulars Rs. „000 Particulars Rs. „000
To Salaries 5,000 By Gross profit 25,000
To Rent 1,000 By Profit on sale of 5,000
Land
To Depreciation 2,000 By Income-tax refund 3,000
To Loss on sale of plant 1,000
 To Goodwill written off 4,000
To Proposed dividend 5,000

To Provision for tax 5,000

To Net profit 10,000
33,000 33,000
Computation of cash from operations
Rs. Rs.
Net profit as per profit and loss a/c 10,000

Add: Non cash/non operating charges

Depreciation 2000
Loss on sale of plant 1000
Goodwill written off 4000
Proposed dividend 5000
Provision for tax 5000 17000
27000

Less: Non cash/non operating income

Profit on sale of land 5000
Income tax refund 3000 8000

Cash from operations 19000