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Financial Accounting for Management: An Analytical Perspective, 4th Edition

Book Description

The fourth edition of Financial Accounting for Management: An Analytical Perspective continues to focus on the analysis and interpretation of financial information for strategic decision making to enable students and managers to formulate business strategies for revenue enhancement, cost economies, efficiency improvements, restructuring of operations, and further expansion or diversification for creating and enhancing the shareholder's value. Though the book has MBA, MFC and MBE students as its primary audience, its practical orientation will be useful to managers in the corporate sector and students of CA, CWA, CS, CFA and CAIIB.

Table of Contents

  1. Cover
  2. Title page
  3. Contents
  4. About the Author
  5. Dedication
  6. Outstanding Pedagogical Features
  7. List of Companies Whose Cases and Financial Practices/Information Have Been Incorporated in This Book
  8. Preface to the Fourth Edition
  9. Preface
  10. Part 1: The Foundation
    1. Chapter 1. Measurement of Profit and Financial Position: I: Business Transactions to Trial Balance
      1. Introduction
      2. India — The Place of Origin of Modern Accounting
      3. The Anatomy of Business
      4. The Accounting Process
      5. Documentation and Recording of Business Transactions
      6. Classifying Business Transactions
      7. Summarising Business Transactions
      8. A Comprehensive Case
      9. Application of Other Fundamental Accounting Concepts
      10. Note on Computerized Accounting System
      11. Alternative Presentation of Ledger Using Tally
      12. Specific Daybooks
      13. Concluding Remarks
      14. Keywords
      15. References
      16. Exercises
    2. Chapter 2. Measurement of Profit and Financial Position: II: Trial Balance to Balance Sheet and Profit and Loss Account: Non-corporate Entities
      1. Introduction
      2. Measurement of Business Income and Financial Position
      3. Trial Balance to Balance Sheet and Profit and Loss Account
      4. Recap of Fundamental Accounting Concepts
      5. Recap of Adjustments
      6. Concluding Remarks
      7. Keywords
      8. Exercises
    3. Chapter 3. Measurement of Profit and Financial Position: III: Corporate Entities
      1. Introduction
      2. Basic Features of the Company Form of Business Organization
      3. Financial Statements of Companies
      4. Recap of Adjustments
      5. Concluding Remarks
      6. Keywords
      7. References
      8. Exercises
  11. Part 2: Concepts and Principles
    1. Chapter 4. Conceptual Framework of Financial Statements
      1. Introduction
      2. Purpose of the Framework
      3. Scope and Coverage
      4. Components of Financial Statements
      5. Objective of Financial Statements
      6. Users and Their Information Needs
      7. Assumptions Underlying Preparation of Financial Statements
      8. Qualitative Characteristics of Financial Statements
      9. Definitions, Characteristics, Recognition and Measurement of the Elements of Financial Statements
      10. Concepts of Capital and Capital Maintenance
      11. Concluding Remarks
      12. Keywords
      13. References
      14. Exercises
    2. Chapter 5. Generally Accepted Accounting Principles
      1. Introduction
      2. Sources of GAAPs
      3. Convergence with International Financial Reporting Standards (IFRSs)
      4. National Harmonization of Accounting Standards
      5. ICAI’s Standard on Accounting Policies: The Mother Standard
      6. AS-5: Net Profit or Loss for the Period, Prior Period and Extraordinary Items and Changes in Accounting Policies
      7. IFRS Converged Ind AS 1 Vs Existing AS 1
      8. IFRS Converged Ind AS 8 Vs Existing AS 5
      9. Research in Financial Reporting
      10. Concluding Remarks
      11. Keywords
      12. References
      13. Exercises
  12. Part 3: Asset Valuation
    1. Chapter 6. Valuation of Tangible Fixed Assets
      1. Introduction
      2. Valuation of Fixed Assets
      3. Meaning, Identification and Significance of Fixed Assets
      4. Scope and Coverage
      5. Principles and Norms of Standard Accounting Treatment
      6. Disclosures in Financial Statements
      7. IFRS Converged Ind AS 16 Vs Existing AS 10
      8. Impact of Government Grants and Borrowing Costs on Fixed Assets Valuation
      9. IFRS Converged Ind AS 20 Vs Existing AS 12
      10. IFRS Converged Ind AS 23 Vs Existing AS 16
      11. Corporate Financial Practices
      12. Valuation of Wasting, Non-regenerative, Assets
      13. Concluding Remarks
      14. Keywords
      15. References
      16. Exercises
    2. Chapter 7. Depreciation on Fixed Assets
      1. Introduction
      2. Depreciation Accounting
      3. Meaning and Significance of Depreciation
      4. Scope and Coverage
      5. Principles and Norms of Standard Accounting Treatment
      6. Disclosures in Financial Statements
      7. Corporate Financial Practices
      8. IFRS Converged Ind AS 16 Vs Existing AS 6
      9. Depletion of Wasting, Non-regenerative, Assets
      10. Concluding Remarks
      11. Keywords
      12. References
      13. Exercises
    3. Chapter 8. Valuation of Assets Under Finance Lease and Intangible Assets, Amortization and Asset Impairment
      1. Introduction
      2. Assets Under Finance Lease
      3. Corporate Financial Practices
      4. IFRS Converged Ind AS 17 Vs Existing AS 19
      5. Intangible Assets and Their Amortization
      6. IFRS Converged Ind AS 38 Vs Existing AS 26
      7. Impairment of Assets
      8. Corporate Financial Practices
      9. IFRS Converged Ind AS 36 Vs Existing AS 28
      10. Concluding Remarks
      11. Keywords
      12. References
      13. Exercises
    4. Chapter 9. Valuation of Inventories
      1. Introduction
      2. Valuation of Inventories
      3. Meaning and Significance of Inventories
      4. Scope and Coverage
      5. IFRS Converged Ind AS 11 Vs Existing AS 7
      6. Principles and Norms of Standard Accounting Treatment
      7. Impact of the Three Methods of Valuation on Cogs, Gross Profit and Net Profit: A Comparison
      8. IFRS Converged Ind AS 37 Vs Existing AS 29
      9. NRV and Its Impact on Valuation of Inventory, Cogs, Gross Profit and Net Profit
      10. Disclosures in Financial Statements
      11. IFRS Converged Ind AS 2 Vs Existing AS 2
      12. Concluding Remarks
      13. Keywords
      14. References
      15. Exercises
    5. Chapter 10. Valuation of Investments
      1. Introduction
      2. Valuation of Investments
      3. Meaning and Significance of Investments
      4. Scope and Coverage
      5. Forms of Investments and Establishment of Their Market Values
      6. Principles and Norms of Standard Accounting Treatment
      7. Disclosures in Financial Statements
      8. Investments in Subsidiary/Associate Companies
      9. Corporate Financial Practices
      10. IFRS Converged Ind AS 39 Vs Existing AS 13
      11. IFRS Converged Ind AS 40
      12. Investments in Jointly Controlled Entities
      13. Corporate Financial Practices
      14. Other IFRS Converged Indian Accounting Standards Related to Measurement and Presentation of Investments
      15. Concluding Remarks
      16. Keywords
      17. References
      18. Exercises
  13. Part 4: Understanding Corporate Financial Statements and Other Financial Reports Included in Annual Reports
    1. Chapter 11. Corporate Balance Sheet
      1. Introduction
      2. Features of the Balance Sheet
      3. Understanding the Various Accounts of Balance Sheet and Their Treatment
      4. Assets (Application of Funds)
      5. Miscellaneous Expenditure and Debit Balance in Profit and Loss Account
      6. Liabilities (Sources of Funds)
      7. Deferred Tax Assets and Liabilities
      8. Loan Funds
      9. Shareholders’ Funds
      10. Concluding Remarks
      11. Keywords
      12. References
      13. Exercises
      14. Appendix/Employee Stock Option Plans
    2. Chapter 12. Corporate Profit and Loss Account
      1. Introduction
      2. Features of Profit and Loss Account
      3. Understanding the Various Accounts of Profit and Loss Account and Their Treatment
      4. Income
      5. IFRS Converged Ind AS 18 Vs Existing AS 9
      6. Expenditure
      7. IFRS Converged Ind AS 37 Vs Existing AS 4/AS 29
      8. Concluding Remarks
      9. Keywords
      10. References
      11. Exercises
    3. Chapter 13. Notes to the Accounts and Significant Accounting Policies
      1. Introduction
      2. Significance of Notes to Accounts
      3. Case of Nestlé India Ltd.
      4. Discussion on Corporate Financial Practices of Nestlé
      5. Contingent Liabilities Not Provided For
      6. IFRS Converged Ind AS 37 Vs Existing AS 4/AS 29
      7. Concluding Remarks
      8. Keywords
      9. References
      10. Exercises
    4. Chapter 14. Understanding and Constructing Corporate Cash Flow Statement
      1. Introduction
      2. Reporting Cash Flow Statement
      3. Meaning and Significance of Cash Flow Statement
      4. Scope and Coverage
      5. Principles and Norms of Standard Accounting Treatment
      6. Disclosures in Cash Flow Statement
      7. IFRS Converged Ind AS 7 Vs Existing AS 3
      8. Construction of Cash Flow Statement: Indirect Method
      9. Construction of CFS From Abridged Balance Sheet and Income statement
      10. Analysis of CFS of Nestlé
      11. Concluding Remarks
      12. Keywords
      13. References
      14. Exercises
    5. Chapter 15. Other Financial Reports: I: Auditors’ Report and Directors’ Report
      1. Introduction
      2. Auditors’ Report
      3. Directors’ Report
      4. Concluding Remarks
      5. Keywords
      6. References
      7. Exercises
    6. Chapter 16. Other Financial Reports: II: Corporate Governance Report
      1. Introduction
      2. Corporate Governance
      3. The CII Initiative
      4. Role of SEBI
      5. Corporate Financial Practices
      6. Audit Committee Pursuant to Provision of the Companies Act
      7. Concluding Remarks
      8. Keywords
      9. References
      10. Exercises
  14. Part 5: Financial Statement Analysis
    1. Chapter 17. Quality of Earnings: Window Dressing, Creative Financial Practices and Issues Related to Quality of Disclosures in Reported Earnings
      1. Introduction
      2. Quality of Earnings
      3. Limitations of Financial Statements
      4. Creative Accounting/Creative Financial Practices
      5. Impact of Other Income and Exceptional/Extraordinary Items
      6. Beating Window Dressing
      7. Specific Issues in Quality of Disclosures in Reported Earnings
      8. Further Care in Analysis
      9. Regulatory Efforts in Ensuring Quality of Earnings
      10. ICAI Awards for Excellence in Financial Reporting
      11. Concluding Remarks
      12. Keywords
      13. References
      14. Exercises
    2. Chapter 18. Financial Statement Analysis and the Tool Kit of the Analyst: I Multi-step, Horizontal, Vertical and Trend Analyses and Analytical Balance Sheet
      1. Introduction
      2. Objectives of Analysis
      3. Various Stakeholders and Their Interests
      4. Tool Kit of the Financial Analyst
      5. Tools and Techniques
      6. Multi-step Income Statement
      7. Horizontal Analysis
      8. Common-sized Analysis
      9. Trend Analysis
      10. Analytical Balance Sheet
      11. Concluding Remarks
      12. Keywords
      13. References
      14. Exercises
    3. Chapter 19. Financial Statement Analysis and the Tool Kit of the Analyst: II: Earning per Share (EPS) Analysis
      1. Introduction
      2. Earnings per Share
      3. Significance of EPS
      4. Scope and Coverage
      5. Principles and Norms of Standard Accounting Treatment
      6. Measurement of DEPS
      7. Disclosures in Financial Statements
      8. IFRS Converged Ind AS 33 Vs Existing AS 20
      9. Concluding Remarks
      10. Keywords
      11. References
      12. Exercises
    4. Chapter 20. Financial Statement Analysis and the Tool Kit of the Analyst: III: Ratio Analysis
      1. Introduction
      2. Ratio Analysis
      3. Classification of Ratios
      4. Structure of Discussion of Ratios
      5. Brief Ratio Analysis of Grasim Industries Ltd.
      6. Return on Investment (RoI) Ratios
      7. Solvency Ratios
      8. Liquidity Ratios
      9. Resources’ Efficiency or Turnover Ratios
      10. Profitability/Profit Margin Ratios
      11. Du Pont Analysis
      12. Valuation or Capital Market Ratios
      13. Detailed Ratio Analysis of Nestlé India Ltd.
      14. Industry Benchmarking
      15. Core Ratios
      16. Concluding Remarks
      17. Keywords
      18. References
      19. Exercises
    5. Chapter 21. Analysis of Cash Flow Statement and Management Discussion and Analysis Report
      1. Introduction
      2. Analysis of Cash Flow Statement
      3. Management Discussion and Analysis Report
      4. Concluding Remarks
      5. Keywords
      6. References
      7. Exercises
  15. Part 6: Strategic and Integrated Managerial Analysis of Corporate Financial Statements and Other Financial Reports of Nestlé India Ltd. Forming Part of its Annual Report
    1. Chapter 22. Model for Strategic and Integrated Managerial Financial Analysis of Annual Report of Nestlé India Ltd.
      1. Introduction
      2. Objectives of Strategic and Integrated Analysis
      3. Model Framework for Integrated Analysis
      4. Detailed Model
      5. Concluding Remarks
      6. Keywords
      7. References
      8. Exercises
    2. Chapter 23. Strategic and Integrated Managerial Financial Analysis of Nestlé India Ltd. Based on the Model
      1. Analysis of Profitability
      2. Overall Ratio Analysis to Evaluate Performance and Financial Position
      3. Innovative Approach Towards and Notes to Deriving Various Ratios
      4. Analysis of Quality of Current Assets, Loans and Advances
      5. Analysis of Crucial Notes to the Accounts and Financial Policies
      6. • Impairment Loss
      7. • Contingency Provision
      8. IFRS Converged Ind AS 37 Vs Existing AS 4/AS 29
      9. • Taxation Policy
      10. IFRS Converged Ind AS 12 Vs Existing AS 22
      11. • Earnings Per Share
      12. • Segment Reporting
      13. IFRS Converged Ind AS 108 Vs Existing AS 17
      14. • Related Party Disclosures
      15. IFRS Converged Ind AS 24 Vs Existing AS 18
      16. Keywords
      17. References
      18. Exercises
      19. Analysis of Auditors’ Report
      20. Analysis of Quality of Earnings
      21. Analysis of Dividend Policy
      22. Keywords
      23. References
      24. Analysis of Cash Flow Statement
      25. Analysis of Capital Market Valuation
      26. Analysis of Corporate Governance Report
      27. Analysis of Directors’ Report
      28. Strategic Issues Emanating Out of Analysis
      29. Need for More Transparent Disclosures
      30. Exercises
  16. Part 7: More on Financial Analysis
    1. Chapter 24. Innovative Techniques of Financial Statement Analysis
      1. Introduction
      2. Analysis per Employee
      3. Analysis per Equity Share
      4. Utility of the Two Techniques
      5. Concluding Remarks
      6. Keywords
      7. References
      8. Exercises
    2. Chapter 25. Analysis of Information from Sources Other than Annual Reports and Inter-company Comparison
      1. Introduction
      2. Significance of Other Sources
      3. Details of Other Sources of Financial Information
      4. Study of Some Samples
      5. CFDS Portal: Corporate Filing and Dissemination System
      6. Inter-Company Comparative Analysis and Analysis Against Industry Aggregates
      7. Concluding Remarks
      8. Keywords
      9. References
      10. Exercises
    3. Chapter 26. Analysis of Group Performance: Consolidated Financial Reporting
      1. Introduction
      2. Consolidation of Subsidiaries
      3. IFRS Converged Ind AS 27 Vs Existing AS 21
      4. Consolidation of Associates
      5. IFRS Converged Ind AS 28 Vs Existing AS 23
      6. Consolidation of Joint Ventures
      7. IFRS Converged Ind AS 31 Vs Existing AS 27
      8. Concluding Remarks
      9. Keywords
      10. References
      11. Exercises
  17. Part 8: Contemporary Issues in Financial Reporting and Analysis
    1. Chapter 27. Global Financial Reporting
      1. Introduction
      2. Objectives of Accounting Standards in the Global Context
      3. Efforts Towards Global Harmonization
      4. Significant Differences Between IAS, Indian GAAP and US GAAP
      5. Need for Uniform Global Financial Reporting
      6. Strengths and Benefits of US GAAPs
      7. Need for Indian GAAP Statements to Be Translated to US GAAPs and IFRSs
      8. Corporate Financial Practices
      9. Concluding Remarks
      10. Keywords
      11. References
      12. Exercises
    2. Chapter 28. Emerging Dimensions in Voluntary Financial Reporting: Contemporary Analytical Techniques
      1. Introduction
      2. Need for Voluntary Information
      3. Value Reporting™
      4. Intangible Assets Score Sheet
      5. Human Resources Valuation
      6. Value-added Statement
      7. Brand Valuation
      8. Balance Sheet (including Intangible Assets)
      9. Current-cost-adjusted Financial Statements
      10. Economic Value-added (EVA®) Statement
      11. Concluding Remarks
      12. Keywords
      13. References
      14. Exercises
  18. Appendices
    1. Appendix 1. Brief Profile of Nestlé India Ltd.
    2. Appendix 2. Nestlé India Ltd. Annual Report 2001
    3. Appendix 3. Extracts from the Annual Report of Nestlé India Ltd. for the Year Ended 31 December 2000
    4. Appendix 4. Present Value of an Annuity of Rupee 1 Paid at the Year End
    5. Appendix 5. Present Value Factor of a Lump Sum (PVF) of Re 1
    6. Appendix 6. New Format of Financial Statements
  19. Acknowledgements
  20. Copyright