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Cost Accounting and Financial Management

Book Description

Cost Accounting and Financial Management: For CA Integrated Professional Competence Course (IPCC) is a comprehensive book designed to help students understand the concepts, theories and practices underlying cost accounting and financial management in a systematic manner. Though focused on the requirements of the students of CA, ICWAI and CS, the book's practical orientation makes it a useful manual for managers in the corporate sector, and students of commerce and management.

Table of Contents

  1. Cover
  2. Title page
  3. Brief Contents
  4. Contents
  5. Reviewers
  6. About the Author
  7. Dedication
  8. Foreword
  9. Preface
  10. Section 1: Cost Accounting
    1. Chapter 1. Basic Concepts
      1. 1.1 Introduction
      2. 1.2 Salient Features of the Financial Accounting System
      3. 1.3 Financial Accounting Vs. Cost Accounting
      4. 1.4 Cost, Costing and Cost Accountancy
      5. 1.5 Cost Sheet
      6. 1.6 Tenders/Quotations
      7. 1.7 Objectives and Importance of Cost Accounting
      8. 1.8 Classification of Costs
      9. 1.9 Parameters of Cost Expressions
      10. 1.10 Cost Centres and Their Need for Identification
      11. 1.11 Responsibility Centre
      12. 1.12 Cost Units in Cost Ascertainment
      13. 1.13 Various Methods of Costing
      14. 1.14 The Reports Provided by Cost Accounting Department for Decision-Making Purposes
      15. 1.15 Essential Features of a Cost Accounting System
      16. 1.16 Various Types of Costs
      17. 1.17 Few Items Not Regarded as Cost and Not Included in the Cost Sheet
      18. 1.18 Cost Ascertainment Classified Based on the time Period of Ascertaining Costs
      19. 1.19 The Role of the Cost Accountant in a Manufacturing Firm
      20. Quick refresher
      21. Key points to be remembered
      22. Worked-out problems
      23. Review questions
      24. Examination problems
    2. Chapter 2. Reconciliation
      1. 2.1 Introduction
      2. 2.2 Memorandum Reconciliation Statement
      3. 2.3 Reconciliation of Cost and Financial Accounts – Relevance in the Modern Computer Age
      4. Quick refresher
      5. Worked-out problems
      6. Review questions
      7. Examination problems
    3. Chapter 3. Materials
      1. 3.1 Introduction
      2. 3.2 Importance of Material Management (MM) in the Overall Profitability of a Company
      3. 3.3 Material Storage
      4. 3.4 Main Objectives of Material Cost Control Systems
      5. 3.5 Important Techniques of Inventory Control
      6. 3.6 Requirements of Material Cost Control
      7. 3.7 Need for Holding Inventories
      8. 3.8 Economic Order Quantity
      9. 3.9 Salient Features of Ordering Levels
      10. 3.10 Classification of Inventory
      11. 3.11 Just-in-Time Purchase
      12. 3.12 Slow Moving, Non-moving and Obsolete Items
      13. 3.13 Control Ratios
      14. 3.14 Computation of Purchase Costs
      15. 3.15 Computation of Purchase Cost of Mixed Purchases
      16. 3.16 Waste, Scrap, Spoilage and Defectives
      17. 3.17 Pricing of Issues
      18. 3.18 Bill of Materials – Advantages
      19. 3.19 Year-end or Periodic and Continuous Stocktaking
      20. Case study
      21. Quick refresher
      22. Worked-out problems
      23. Review questions
      24. Examination problems
    4. Chapter 4. Labour
      1. 4.1 Introduction
      2. 4.2 Components of Labour Cost
      3. 4.3 Departments Involved in the Measurement And Control of Labour Costs
      4. 4.4 Time-keeping and its Objectives
      5. 4.5 Time Booking and its Objectives
      6. 4.6 Idle Time
      7. 4.7 Overtime Work
      8. 4.8 Labour Turnover
      9. 4.9 Work-study and its Role in Cost Reduction
      10. 4.10 Work Measurement
      11. 4.11 Manpower Planning and its Salient Features
      12. 4.12 Scanlon’s Plan
      13. 4.13 Remuneration and Incentive
      14. 4.14 Group Bonus Schemes
      15. 4.15 Job Evaluation
      16. 4.16 Merit Rating
      17. Quick refresher
      18. Key points to be remembered
      19. Worked-out problems
      20. Review questions
      21. Examination problems
    5. Chapter 5. Overheads
      1. 5.1 Introduction
      2. 5.2 Definition and Classification of Overheads
      3. 5.3 Allocation and Apportionment of Overheads
      4. 5.4 Computation of Departmental Overhead Recovery Rate
      5. 5.5 Rated Capacity, Practical Capacity, Idle Capacity, Normal Capacity and Actual Capacity
      6. 5.6 Treatment in Cost Accounts
      7. 5.7 Machine-hour Rate
      8. 5.8 Absorption of Overheads – Over- or Under-absorption
      9. 5.9 Blanket Recovery Rate – Single and Multiple Recovery Rates
      10. Quick refresher
      11. Key points to be remembered
      12. Worked-out problems
      13. Review questions
      14. Examination problems
    6. Chapter 6. Integral and Cost Control Accounts
      1. 6.1 Introduction
      2. 6.2 Summarised Journal Entries
      3. 6.3 Cost Control Accounting
      4. 6.4 Integral Accounts
      5. Quick refresher
      6. Key points to be remembered
      7. Worked-out problems
      8. Review questions
    7. Chapter 7. Contract Costing
      1. 7.1 Introduction
      2. 7.2 Types of Contract
      3. 7.3 Escalation
      4. 7.4 Guidelines for Accounting the Cost Incurred in a Contract
      5. 7.5 Cost of Extra Work
      6. 7.6 Estimated Profit
      7. Quick refresher
      8. Key points to be remembered
      9. Worked-out problems
      10. Review questions
      11. Examination questions
    8. Chapter 8. Process Costing
      1. 8.1 Introduction
      2. 8.2 Preparation of Process Accounts
      3. 8.3 Comprehensive Problem
      4. 8.4 Equivalent Production
      5. 8.5 First-In-First-Out (FIFO) Method
      6. 8.6 Statement of Equivalent Production – Materials A and B
      7. 8.7 Last-In-First-Out (LIFO) Method
      8. 8.8 Average Cost Method
      9. 8.9 Weighted Average Method
      10. 8.10 Operation Costing
      11. 8.11 Inter-process Profits
      12. Quick refresher
      13. Key points to be remembered
      14. Worked-out problems
      15. Review questions
      16. Examination problems
    9. Chapter 9. Job and Batch Costing
      1. 9.1 Introduction
      2. 9.2 Batch Costing
      3. Quick refresher
      4. Key points to be remembered
      5. Worked-out problems
      6. Review questions
      7. Examination problems
    10. Chapter 10. Operating Costing
      1. 10.1 Introduction
      2. 10.2 Absolute and Commercial Tonne-Kilometres
      3. 10.3 Standard Load
      4. 10.4 Round Trips
      5. 10.5 School Bus Half-tickets
      6. 10.6 Hospital Costing—Patient-Days
      7. 10.7 Municipality—Tonne-Kilometres
      8. 10.8 Hotel Costing—Room-Days
      9. 10.9 Airlines
      10. 10.10 Decision-Making
      11. Quick refresher
      12. Key points to be remembered
      13. Worked-out problems
      14. Review questions
      15. Examination problems
    11. Chapter 11. Joint Products and By-products
      1. 11.1 Introduction
      2. 11.2 Pre-separation Costs and Post Separation Costs
      3. 11.3 Basis of Apportioning Joint Cost
      4. 11.4 Reverse Cost Method
      5. 11.5 Sales Value Method
      6. 11.6 Physical Measurement by Weight
      7. Quick refresher
      8. Key points to be remembered
      9. Worked-out problems
      10. Review questions
      11. Examination problems
    12. Chapter 12. Standard Costing
      1. 12.1 Introduction
      2. 12.2 Definition of Standard Cost
      3. 12.3 Different Types of Standards and their Fixation
      4. 12.4 Establishment or Development of Standard Cost
      5. 12.5 Overview of Variances
      6. 12.6 Material Cost Standards
      7. 12.7 Labour Cost Standards and Variances
      8. 12.8 Overhead Cost Standards
      9. 12.9 Variable Overhead Cost Variances (VOHV)
      10. 12.10 Fixed Overhead Variances
      11. 12.11 Sales Variances – Price and Margin Variances
      12. 12.12 Market Share Variances (MSV)
      13. Quick refresher
      14. Key points to be remembered
      15. Worked-out problems
      16. Review questions
    13. Chapter 13. Marginal Costing
      1. 13.1 Introduction
      2. 13.2 Definitions
      3. 13.3 Format of the Marginal Cost Sheet
      4. 13.4 Cost-Volume-Profit Analysis [CVP Analysis]
      5. 13.5 Profit Volume Ratio (P/V Ratio)
      6. 13.6 Break-even Point (BEP)
      7. 13.7 Margin of Safety (MOS)
      8. 13.8 Break-even Analysis
      9. 13.9 Break-even Chart
      10. 13.10 Angle of Incidence (U)
      11. 13.11 Break-even Point, Angle of Incidence and Margin of Safety
      12. 13.12 Indifference Point or Cost Break-even Point
      13. 13.13 Different Approaches for DecisionMaking
      14. 13.14 Different Views on Break-even Point
      15. 13.15 Assumptions in Cost-Volume-Profit Analysis
      16. 13.16 Multi-product Situations
      17. 13.17 Marginal Costing and Absorption Costing – Valuation of Inventories
      18. Quick refresher
      19. Key points to be remembered
      20. Worked-out problems
      21. Review questions
    14. Chapter 14. Budgets and Budgetary Control
      1. 14.1 Introduction
      2. 14.2 Definitions
      3. 14.3 Budget
      4. 14.4 Budgetary Control
      5. 14.5 Objectives of Budgetary Control
      6. 14.6 Salient Features of the Budgetary Control System
      7. 14.7 Factors to be Considered for the Preparation of Budgets
      8. 14.8 Budget Manual
      9. 14.9 Different Types of Budgets
      10. 14.10 Functional Budgets
      11. 14.11 Master Budgets
      12. 14.12 Sales Budget
      13. 14.13 Production Budget
      14. 14.14 Purchase Budget
      15. 14.15 Selling and Distribution Cost Budget
      16. 14.16 Forecast Reports
      17. 14.17 Production Cost Budget
      18. 14.18 Manpower Budget/Personnel Budget/ Labour Cost Budget
      19. 14.19 Plant Utilisation Budget
      20. 14.20 Cash Budget
      21. 14.21 Master Budget – Profit and Loss Account and Balance Sheet
      22. 14.22 Fixed and Flexible Budgets
      23. 14.23 Budgetary Ratios
      24. Quick refresher
      25. Key points to be remembered
      26. Worked-out problems
      27. Review questions
  11. Section 2: Financial Management
    1. Chapter 15. objective and scope of Financial management
      1. 15.1 Introduction
      2. 15.2 Issues Concerning the Procurement of Funds
      3. 15.3 Comparison of Equity with Debt
      4. 15.4 The Evolution and Changing Scenario of Financial Management in India
      5. 15.5 Functions of the Finance Manager
      6. Quick refresher
      7. Key points to be remembered
      8. Review questions
      9. Examination questions
    2. Chapter 16. Time Value of money
      1. 16.1 Introduction
      2. 16.2 Simple Interest
      3. 16.3 Compound Interest
      4. 16.4 Present Value
      5. 16.5 Future Value
      6. 16.6 Annuity
      7. 16.7 Perpetuity
      8. 16.8 Discounting
      9. 16.9 Present Value of an Annuity
      10. 16.10 Future Value of an Annuity
      11. 16.11 Rate of return
      12. 16.12 Computation of Time Value of Money
      13. Quick refresher
      14. Review questions
      15. Examination problems
    3. Chapter 17. Ratio Analysis
      1. 17.1 Introduction
      2. 17.2 Purpose of Financial Statement Analysis
      3. 17.3 Importance of Financial Statement Analysis
      4. 17.4 Different Types of Financial Statement Analysis
      5. 17.5 Analysis of Financial Statements Through Ratios
      6. 17.6 Classification of Ratios
      7. 17.7 DuPont Chart
      8. 17.8 Analysis of Indebtness/Risk Assessment
      9. 17.9 Ratios for Identifying the Ability to Service Debts
      10. 17.10 Comparative Financial Statement
      11. 17.11 Common-size Financial Statement
      12. 17.12 Trend Percentage Analysis
      13. 17.13 Modes of Comparison
      14. 17.14 Index Analysis
      15. 17.15 Comparative and Common-size Analysis
      16. Quick refresher
      17. Key points to be remembered
      18. Review questions
      19. Examination problems
    4. Chapter 18. Financing Decisions
      1. 18.1 Introduction
      2. 18.2 Steps for Solving Financing Decision Problems
      3. Review questions
    5. Chapter 19. Cost of Capital
      1. 19.1 Introduction
      2. 19.2 Book Value and Market Value Weights
      3. 19.3 Computation of Cost of Individual Sources
      4. 19.4 Calculation of Growth Rate in Dividends
      5. 19.5 Weighted Marginal Cost of Capital
      6. Quick refresher
      7. Key points to be remembered
      8. Review questions
      9. Examination problems
    6. Chapter 20. Capital Structures Theories
      1. 20.1 Introduction
      2. 20.2 Factors to be Considered in Determining the Capital Structure
      3. 20.3 Net Income (NI) Approach
      4. 20.4 Traditional Approach
      5. 20.5 Net Operating Income (NOI) Approach
      6. 20.6 Modigliani-Miller (MM) Approach
      7. Quick refresher
      8. Key points to be remembered
      9. Review questions
      10. Examination problems
    7. Chapter 21. Valuation of Securities – Shares and Bonds
      1. 21.1 Introduction
      2. 21.2 Types of Debt Securities
      3. 21.3 Valuation of Equity Shares
      4. Quick refresher
      5. Key points to be remembered
      6. Review questions
      7. Examination problems
    8. Chapter 22. Leverage Analysis
      1. 22.1 Introduction
      2. 22.2 Operating Leverage
      3. 22.3 Financial Leverage
      4. 22.4 Combined Leverage
      5. 22.5 Concept of Indifference Point and Financial Break-even Point
      6. 22.6 Financial Break-even Point
      7. Quick refresher
      8. Key points to be remembered
      9. Review questions
      10. Examination problems
    9. Chapter 23. Capital Budgeting
      1. 23.1 Introduction
      2. 23.2 Classification of Decisions
      3. 23.3 Salient Features of Capital Budgeting Decisions
      4. 23.4 Accounting Rate of Return (ARR)
      5. 23.5 Payback Period and its Usefulness in Analysing the Risk
      6. 23.6 Salient Features of Discounted Cash Flow Techniques (DCF)
      7. 23.7 Cut-off Rate
      8. 23.8 Net Present Value (NPV) Method
      9. 23.9 Disparity in the Life of a Project
      10. 23.10 Internal Rate of Return (IRR)
      11. 23.11 Profitability Index
      12. 23.12 Computation of Various Cash FLows
      13. 23.13 Replacement Decisions
      14. 23.14 Expected Net Present Value and Uncertainity
      15. 23.15 Capital Budgeting and Pricing
      16. 23.16 Opportunity Cost Approach
      17. 23.17 Sensitivity Analysis
      18. 23.18 Impact of Inflation – Fisher Effect
      19. 23.19 Risk and Uncertinity
      20. 23.20 Decision Tree Analysis
      21. 23.21 Capital Budgeting and Certainty Equivalent
      22. 23.22 Capital Budgeting and Leasing
      23. Quick refresher
      24. Key points to be remembered
      25. Review questions
      26. Examination problems
    10. Chapter 24. Working Capital management
      1. 24.1 Introduction
      2. 24.2 Importance of Working Capital Management
      3. 24.3 Estimation of Working Capital – Full Cost Basis
      4. 24.4 Effect of Double Shift Working on Working Capital
      5. 24.5 Factors Affecting the Requirement of Working Capital
      6. 24.6 Cash Cost of Working Capital
      7. 24.7 Operating Cycle
      8. 24.8 Cash Cycle
      9. 24.9 Estimation of Working Capital Using Weighted Operating Cycle Approach
      10. 24.10 Financing of Working Capital
      11. 24.11 Tandon Committee
      12. Quick refresher
      13. Key points to be remembered
      14. Review questions
      15. Examination problems
    11. Chapter 25. Cash management
      1. 25.1 Introduction
      2. 25.2 Importance of Cash Management
      3. 25.3 Focus of Cash Management
      4. 25.4 Float
      5. 25.5 Cash Management Models
      6. 25.6 Marketable Securities and Their Selections
      7. Quick refresher
      8. Key points to be remembered
      9. Review questions
      10. Examination questions
    12. Chapter 26. Receivables management
      1. 26.1 Introduction
      2. 26.2 Salient Features of Receivables Management
      3. 26.3 Cash Discount Policy
      4. 26.4 Collection Effort
      5. 26.5 Factoring and Forfeiting
      6. Quick refresher
      7. Key points to be remembered
      8. Review questions
      9. Examination problems
    13. Chapter 27. Cash Flow and Funds Flow statement
      1. 27.1 Introduction
      2. 27.2 Advantages of Cash Flow Statement
      3. 27.3 Limitations of Cash Flow Statement
      4. 27.4 Concept of Accounting Standard – 3 (Revised)
      5. 27.5 Presentation of Cash Flow Statement
      6. 27.6 Preparation and Reporting of Cash Flow Statement
      7. 27.7 Disclosure of Cash and Cash Equivalents
      8. 27.8 Format of Cash Flow Statement
      9. 27.9 Funds Flow Analysis
      10. Quick refresher
      11. Key points to be remembered
      12. Review questions
      13. Examination problems
  12. Appendix A: Important Terms
  13. Appendix B: Key Formulae
  14. Appendix C: Tables
  15. Acknowledgements
  16. Copyright