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Financial Accounting for Management, 5th Edition

Book Description

Financial Accounting for Management: An Analytical Perspective, 5e, has been substantially revised to capture new provisions of statutory requirements. A greater emphasis has been laid on simplifying concepts and increasing the usefulness of the text for the students. This has been achieved by introducing new chapters, rewriting certain initial chapters, introducing simpler and smaller illustrations, and including new exercises in all the chapters.

Table of Contents

  1. Cover
  2. Title Page
  3. Contents
  4. Preface
  5. About The Author
  6. PART 1: THE FOUNDATION
    1. Chapter 1 Measurement of Profit and Financial Position: I Business Transactions to Recording in Journal
      1. Introduction
      2. India—The Place of Origin of Modern Accounting
      3. The Anatomy of Business
      4. Assets
      5. Liabilities
      6. Financial Position
      7. Income
      8. Expenses
      9. Financial Performance
      10. The Accounting Process
      11. Analysis, Documentation and Recording of Business Transactions
      12. Analysis
      13. Wonderland of Debit and Credit
      14. Dual Aspect Concept
      15. Accrual Concept/Mercantile System of Accounting
      16. Documentation: Voucher
      17. Recording: Journal
      18. Application of Other Fundamental Accounting Concepts
      19. A. Dual Aspect Concept
      20. B. Business Entity Concept
      21. C. Accrual Conceptt
      22. Application of Other Fundamental Accounting Concepts
      23. Cost Concept
      24. Business Entity Concept Further Illustrated
      25. Concluding Remarks
      26. Keywords
      27. References
      28. Exercises
    2. Chapter 2 Measurement of Profit and Financial Position: II Journal to Trial Balance
      1. Introduction
      2. Classifying Business Transactions
      3. Summarising Business Transactions
      4. Application of Other Fundamental Accounting Concepts
      5. Realisation Concept
      6. Money Measurement Concept
      7. Further Illustration of Some Fundamental Accounting Concepts
      8. Note on Computerized Accounting System
      9. Alternative Presentation of Ledger Using Tally
      10. Concluding Remarks
      11. Keywords
      12. Exercises, Cases
    3. Chapter 3 Measurement of Profit and Financial Position: III 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. Analysis of Trial Balance
      5. Need for Adjustments
      6. Inventory Valuation
      7. Construction of Balance Sheet and Profit and Loss Account
      8. General Instructions and Observations for Preparing the Two Financial Statements
      9. Brief Analysis of the Financial Statements of Bharat Scientific Products Enterprise
      10. Recap of Fundamental Accounting Concepts
      11. Recap of Adjustments
      12. Concluding Remarks
      13. Keywords
      14. Exercises, Cases
    4. Chapter 4 Measurement of Profit and Financial Position: IV Corporate Entities
      1. Introduction
      2. Basic Features of the Company form of Business Organization
      3. Registration Under the Companies Act
      4. Types of Companies
      5. Preliminary Expenses
      6. Board of Directors
      7. Financial Statements of Companies
      8. Share Capital
      9. Public Issue Expenses
      10. Accounting Treatment of Share Capital
      11. Form of Financial Statements
      12. Some Features of Financial Statements
      13. Issue of Shares at a Premium
      14. Bonus Shares
      15. Recap of Adjustments
      16. Concluding Remarks
      17. Keywords
      18. References
      19. Exercises
    5. Chapter 5 Vertical Financial Statements of Corporate Entities
      1. Introduction
      2. Vertical Form of Financial Statements
      3. Key Distinctive Features of the New Format
      4. Process of Construction of Financial Statements in the New Form
      5. Vertical Financial Statements of Shashaank Industries Ltd.
      6. Merits and Demerits of Vertical Format
      7. Treatment of ‘Miscellaneous Expenditure Not W/O’ and ‘Debit Balance of Statement of Profit and Loss’
      8. Treatment of Tax Expenses
      9. Concluding Remarks
      10. Keywords
      11. References
      12. Exercises
    6. Chapter 6 Specific Day Books
      1. Introduction
      2. Specific Daybooks/Journals
      3. Purchase Book/Purchase Day Book/Purchase Journal
      4. Sales Book/Sales Day Book/Sales Journal
      5. Cash Book/Cash Day Book/Cash Journal
      6. Concluding Remarks
      7. Keywords
      8. Exercises
  7. PART 2: CONCEPTS AND PRINCIPLES
    1. Chapter 7 Conceptual Framework of Financial Statements
      1. Introduction
      2. Purpose of the Framework
      3. Scope and Coverage
      4. Components of Financial Statements
      5. Research in Financial Reporting
      6. Objective of Financial Statements
      7. Users and Their Information Needs
      8. Assumptions Underlying Preparation of Financial Statements
      9. Qualitative Characteristics of Financial Statements
      10. Constraints on Qualitative Characteristics
      11. True and Fair View
      12. Definitions, Characteristics, Recognition and Measurement of the Elements of Financial Statements
      13. Concepts of Capital and Capital Maintenance
      14. Concluding Remarks
      15. Keywords
      16. References
      17. Exercises
    2. Chapter 8 Generally Accepted Accounting Principles
      1. Introduction
      2. Sources of GAAPs
      3. Conceptual Framework of Financial Statements
      4. Accounting Concepts and Principles Other than Those Covered by the Framework
      5. Requirements of the Companies Act
      6. Vertical Financial Statements of Nestle India Ltd.
      7. Accounting Standards Formulated by ICAI
      8. Convergence with International Financial Reporting Standards (IFRSs)
      9. Requirements of SEBI
      10. Requirements of Income Tax Act
      11. ICAI’s Standard on Accounting Policies: The Mother Standard
      12. AS-5: Net Profit or Loss for the Period, Prior Period and Changes in Accounting Policies
      13. Research in Financial Reporting
      14. Concluding Remarks
      15. Keywords
      16. References
      17. Exercises
  8. PART 3: ASSET VALUATION
    1. Chapter 9 Valuation of Tangible Fixed Assets
      1. Introduction
      2. Valuation of Fixed Assets
      3. Meaning, Identification and Significance of Fixed Assets
      4. Research in Financial Reporting
      5. Scope and Coverage
      6. Principles and Norms of Standard Accounting Treatment
      7. Determinants of Value of Fixed Assets
      8. Valuation of Fixed Assets in Special Cases
      9. Identification of Certain Specific Fixed Assets
      10. Revaluation of Fixed Assets
      11. Retirements and Disposals
      12. Disclosures in Financial Statements
      13. Impact of Government Grants and Borrowing Costs on Fixed Assets Valuation
      14. Accounting for Government Grants
      15. Borrowing Costs
      16. Corporate Financial Practices
      17. Valuation of Wasting, Non-Regenerative, Assets
      18. Corporate Financial Practices
      19. Concluding Remarks
      20. Keywords
      21. References
      22. Exercises, Cases
    2. Chapter 10 Depreciation on Fixed Assets
      1. Introduction
      2. Depreciation Accounting
      3. Meaning and Significance of Depreciation
      4. Research in Financial Reporting
      5. Scope and Coverage
      6. Principles and Norms of Standard Accounting Treatment
      7. Determinants of Depreciation
      8. Methods of Depreciation
      9. Statutory Requirements and Compliance
      10. Book Profit and Taxable Profit
      11. MAT and Deferred Tax
      12. Consistency Principle: Change in Method
      13. Depreciation Charge in Special Cases
      14. Revaluation of Fixed Assets and Depreciation
      15. Profit/Loss on Disposal of Fixed Assets
      16. Disclosures in Financial Statements
      17. Corporate Financial Practices
      18. Depletion of Wasting, Non-regenerative, Assets
      19. Corporate Financial Practices
      20. Concluding Remarks
      21. Keywords
      22. References
      23. Exercises, Cases
    3. Chapter 11 Valuation of Assets under Finance Lease and Intangible Assets, Amortization and Asset Impairment
      1. Introduction
      2. Assets Under Finance Lease
      3. Meaning of Lease and Finance Lease
      4. Substance over Form
      5. Principles and Norms of Standard Accounting Treatment
      6. Disclosures in Financial Statements
      7. Corporate Financial Practices
      8. Position Under the Income Tax Act
      9. Intangible Assets and Their Amortisation
      10. Goodwill
      11. Meaning and Significance of Intangible Assets
      12. Principles and Norms of Standard Accounting Treatment
      13. Rates of Depreciation as Per Appendix I—Rule 5 of the Income Tax Rules
      14. Disclosures in Financial Statements
      15. Corporate Financial Practices
      16. Impairment of Assets
      17. Meaning and Significance
      18. Principles and Norms of Standard Accounting Treatment
      19. Disclosures in Financial Statements
      20. Corporate Financial Practices
      21. Concluding Remarks
      22. Keywords
      23. References
      24. Exercises, Cases
    4. Chapter 12 Valuation of Inventories
      1. Introduction
      2. Valuation of Inventories
      3. Meaning and Significance of Inventories
      4. Research in Financial Reporting
      5. Scope and Coverage
      6. Construction Contracts
      7. Service Providers
      8. Shares etc. held as Stock-in-Trade
      9. Livestock and Agricultural etc. Products
      10. Principles and Norms of Standard Accounting Treatment
      11. Valuation Policy
      12. Cost of Inventories
      13. Cost Formulas
      14. Illustrations on the Methods of Valuation
      15. FIFO
      16. LIFO
      17. WAC
      18. Impact of the Three Methods of Valuation on COGs, Gross Profit and Net Profit: A Comparison
      19. Impact on COGS and Gross Profit
      20. Impact on Net Profit
      21. Techniques for the Measurement of Cost
      22. Net Realisable Value
      23. NRV and ITS Impact on Valuation of Inventory, COGs, Gross Profit and Net Profit
      24. Disclosures in Financial Statements
      25. Corporate Financial Practices
      26. Concluding Remarks
      27. Keywords
      28. References
      29. Exercises, Cases
    5. Chapter 13 Valuation of Investments
      1. Introduction
      2. Valuation of Investments
      3. Meaning and Significance of Investments
      4. Research in Financial Reporting
      5. Scope and Coverage
      6. Forms of Investments and Establishment of their Market Values
      7. Active Market or Absence Thereof
      8. Principles and Norms of Standard Accounting Treatment
      9. Classification of Investments
      10. Cost of Investments
      11. Valuation/Carrying Amount of Investments in the Balance Sheet
      12. Reclassification of Investments
      13. Determination of Cost of Investments in Cases of Rights Issue
      14. Disposal of Investments
      15. Shares and Other Securities held as Stock-in-Trade
      16. Disclosures in Financial Statements
      17. Investments in Subsidiary/Associate Companies
      18. Corporate Financial Practices
      19. Investments in Jointly Controlled Entities
      20. Corporate Financial Practices
      21. Concluding Remarks
      22. Keywords
      23. References
      24. Exercises, Cases
  9. PART 4: UNDERSTANDING THE ANNUAL REPORT
    1. Chapter 14 Corporate Financial Statements of Nestle India Ltd Along With Notes to Accounts and Significant Accounting Policies
      1. Introduction
      2. Brief Profile of Nestle India Ltd.
      3. Financial Statements of Nestle India Ltd.
      4. Balance Sheet
      5. Statement of Profit and Loss
      6. Features of the Financial Statements
      7. Understanding the Inter-Linkage of the Financial Statements
      8. Understanding the Various Accounts of Balance Sheet and Notes Thereto
      9. Shareholders’ Funds
      10. Current Liabilities
      11. Non-current Assets
      12. Current Assets
      13. Understanding the Various Accounts of the Statement of Profit and Loss and Notes Thereto
      14. Revenue from Operations
      15. Cost of Materials Consumed
      16. Changes in Inventories of Finished Goods, Work-in-Progress and Stock-in-Trade
      17. Employee Benefits Expense
      18. Depreciation
      19. Impairment loss on Fixed Assets
      20. Profit from Operations
      21. Other Income
      22. Finance Costs
      23. Employee Benefit Expense Due to Passage of Time
      24. Net Provision for Contingencies (Others)
      25. Profit before Corporate Social Responsibility Expenses, Exceptional Items and Taxation
      26. Corporate Social Responsibility Expenses
      27. Exceptional Items
      28. Profit before Taxation
      29. Tax Expense
      30. Profit after Taxation
      31. Earnings per Share
      32. A Brief on Deferred Tax Assets and Liabilities
      33. Purpose Served by AS-22
      34. Concluding Remarks
      35. Keywords
      36. References
      37. Exercises, Cases
      38. Appendix
      39. Employee Stock Option Plans
    2. Chapter 15 Other Mandatory Financial Reports
      1. Introduction
      2. Auditors’ Report
      3. Requirements of the Companies Act
      4. Companies (Auditors’ Report) Order, 2003 or CARO
      5. Corporate Financial Practices
      6. Review of the Auditors’ Report of Nestlé
      7. Directors’ Report
      8. Requirements of the Companies Act
      9. Corporate Financial Practices
      10. Review of the Directors’ Report of Nestlé
      11. Corporate Governance Report
      12. Objective and Importance of Corporate Governance
      13. Suggested List of Items for Corporate Governance Report
      14. Non-mandatory Requirements
      15. Review of Nestlé’s Report on Corporate Governance
      16. Management Discussion and Analysis Report
      17. Report and Its Contents
      18. Significance of MD&Amp;A
      19. Review of Nestlé’s MD&A Report
      20. Report on Corporate Social Responsibility (CSR) Activities
      21. Requirements of the Companies Act, 2013
      22. Review of Nestlé’s Report on CSR Activities
      23. Concluding Remarks
      24. Keywords
      25. References
      26. Exercises, Cases
  10. PART 5: FINANCIAL STATEMENT ANALYSIS
    1. Chapter 16 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. Leverage Provided by GAAPs
      5. Window Dressing
      6. Creative Accounting/Creative Financial Practices
      7. Non-provision of Diminution in the Value of Long-term Investments
      8. Changes in Accounting Policies
      9. Extending the Accounting Year
      10. Non-provisioning of Expenses and Doubtful/Disputed Debts
      11. Contingent Liabilities Not Provided for
      12. Impact of Other Income and Exceptional/ Extraordinary Items
      13. Some More Cases
      14. Beating Window Dressing
      15. Further Care in Analysis
      16. Regulatory Efforts in Ensuring Quality of Earnings
      17. ICAI Awards for Excellence in Financial Reporting
      18. Background
      19. Objective
      20. Categories of the Awards
      21. Awards to be Distributed
      22. Important Factors for Selection of Awardees
      23. Award Winners
      24. Concluding Remarks
      25. Keywords
      26. References
      27. Exercises, Cases
    2. Chapter 17 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 Statement of Profit and Loss
      7. The Tool
      8. Format of Multi-step Statement of Profit and Loss
      9. Analysis of Multi-step Income Statement of Bajaj Auto Ltd.
      10. Horizontal Analysis
      11. The Tool
      12. Horizontal Analysis of Bajaj Auto Ltd.
      13. Balance Sheet
      14. Overall Assessment
      15. Common-sized Analysis
      16. The Tool
      17. Comparative Common-sized Analysis of Bajaj Auto Ltd. and TVS Motor Company Ltd.
      18. Statement of Profit and Loss
      19. Balance Sheet
      20. Overall Assessment
      21. Trend Analysis
      22. The Tool
      23. Trend Analysis of Liberty
      24. Quantitative Details
      25. Position at The Year End
      26. Overall Assessment
      27. Analytical Balance Sheet
      28. The Tool
      29. Review of Analytical Balance Sheet of Shopper’s Stop Ltd.
      30. Concluding Remarks
      31. Keywords
      32. References
      33. Exercises, Cases
    3. Chapter 18 Financial Statement Analysis and the Tool Kit of the Analyst: II Earnings 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. Presentation of BEPS and DEPS
      7. Measurement of BEPS
      8. Measurement of DEPS
      9. An Illustration Now Follows to Clarify the Above Discussion
      10. Restatement of EPS Consequent to Issue of Non-resource Generating Equity Shares After the Balance Sheet Date
      11. Per Share Information Other Than BEPS and DEPS
      12. Disclosures in Financial Statements
      13. Concluding Remarks
      14. Keywords
      15. References
      16. Exercises, Cases
    4. Chapter 19 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. Background Note on Innovative Approach towards Deriving Various Ratios
      6. Return on Investment (ROI) Ratios
      7. ROI Ratios of Grasim Industries Ltd.
      8. Solvency Ratios
      9. Solvency Ratios of Grasim Industries Ltd.
      10. Liquidity Ratios
      11. Liquidity Ratios of Grasim Industries Ltd.
      12. Resources’ Efficiency or Turnover Ratios
      13. Resources Efficiency Ratios of Grasim Industries Ltd.
      14. Profitability/Profit Margin Ratios
      15. Multi-step Profit Margin(s) to Net Revenue from Operations Ratios of Grasim Industries Ltd.
      16. Ratios of Individual ‘Other Expenses’ to Net Revenue from Operations (%) of Grasim Industries Ltd.
      17. Ratios of Other Income (non-operating), Exceptional/Extra-ordinary Items and Effective Tax Rate to PBT of Grasim Industries Ltd.
      18. DU Pont Analysis
      19. DU Pont Analysis of Grasim Industries Ltd.
      20. Valuation or Capital Market Ratios
      21. Valuation Ratios of Grasim Industries Ltd.
      22. Overall Ratio Analysis of Grasim Industries Ltd.
      23. Industry Benchmarking
      24. Analysis of Grasim vis-à-vis industry
      25. Core Ratios
      26. Concluding Remarks
      27. Keywords
      28. References
      29. Exercises, Cases
    5. Chapter 20 Construction and Analysis of Corporate Cash Flow Statement
      1. Introduction
      2. Features of Cash Flow Statement Nestle
      3. Reporting Cash Flow Statement
      4. Meaning and Significance of Cash Flow Statement
      5. Scope and Coverage
      6. Principles and Norms of Standard Accounting Treatment
      7. Cash and Cash Equivalents and Accounting Policy on Their Composition
      8. Basis for Classification of Activities
      9. Operating Activities
      10. Investing Activities
      11. Financing Activities
      12. Methods of Reporting Cash Flows
      13. Issues Requiring Special Considerations
      14. Non-cash Investing and Financing Transactions
      15. Restricted Cash and Cash Equivalents
      16. Additional Information
      17. Disclosures in Cash Flow Statement
      18. Construction of Cash Flow Statement from Abridged Balance Sheet When No Additional Information is Provided: Indirect Method
      19. Construction of Cash Flow Statement from The Abridged Balance Sheet When More Notes and Additional Information is Provided: Indirect Method
      20. Analysis of Cash Flow Statements
      21. Concluding Remarks
      22. Keywords
      23. References
      24. Exercises, Cases
    6. Chapter 21 Model for Strategic and Integrated Managerial Financial Analysis of Annual Report
      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
  11. PART 6: MORE ON FINANCIAL REPORTING AND ANALYSIS Chapter 22 Analysis of Information from Sources Other than Annual Reports and Inter-company Comparison
    1. Chapter 22 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. Research Report from Capital Market
      6. News Items from The Economic Times
      7. CFDS Portal: Corporate Filing and Dissemination System
      8. Inter-Company Comparative Analysis and Analysis Against Industry Aggregates
      9. Concluding Remarks
      10. Keywords
      11. References
      12. Exercises, Cases
    2. Chapter 23 Analysis of Group Performance: Consolidated Financial Reporting
      1. Introduction
      2. Consolidation of Subsidiaries
      3. Consolidated Financial Statements
      4. Meaning of Consolidated Financial Statements
      5. Significance of Consolidated Financial Statements
      6. Scope and Coverage
      7. Parent, Subsidiary and Group
      8. Control
      9. Principles and Norms of Standard Accounting Treatment
      10. Global Consolidation
      11. The Process of Consolidation
      12. Minority Interest as on 31-03-2007
      13. Status of the Consolidated Financial Statements
      14. Application of Other Accounting Standards
      15. Disclosures in Financial Statements
      16. Consolidation of Associates
      17. Accounting for Investments in Associates in Consolidated Financial Statements
      18. Associate and Significant Influence
      19. Principles and Norms of Standard Accounting Treatment
      20. The Equity Method
      21. Further Issues
      22. Disclosures in Consolidated Financial Statements
      23. Consolidation of Joint Ventures
      24. Financial Reporting of Interests in Joint Ventures
      25. Types of Joint Ventures
      26. Jointly Controlled Operations
      27. Nature of the Joint Venture
      28. Principles and Norms of Standard Accounting Treatment
      29. Jointly Controlled Assets
      30. Nature of the Joint Venture
      31. Principles and Norms of Standard Accounting Treatment
      32. Jointly Controlled Entities
      33. Nature of the Joint Venture
      34. Principles and Norms of Standard Accounting Treatment
      35. Disclosures in Financial Statements
      36. Associates and Joint Ventures
      37. Analysis of Performance of ICICI Bank Ltd. As a Group
      38. Concluding Remarks
      39. Keywords
      40. References
      41. Exercise
    3. 24 Emerging Dimensions in Voluntary Financial Reporting: Contemporary Analytical Techniques
      1. Introduction
      2. Need for Voluntary Information
      3. Growing Complexity of Financial Statements
      4. Emergence of Contemporary Techniques
      5. Value Reporting™
      6. The Value ReportingTM paradigm
      7. The Value ReportingTM Disclosure Model
      8. Intangible Assets Score Sheet
      9. Intangible Assets
      10. Human Resources
      11. Intellectual Property Assets
      12. Internal Assets
      13. External Assets
      14. The Score Sheet
      15. Analysis (As Per Annual Report)
      16. Infosys Intangible Assets Score Sheet
      17. Human Resources Valuation
      18. Value-added Statement
      19. Brand Valuation
      20. The Strength of the Invisible
      21. Valuing the Brand
      22. Methodology
      23. Brand Valuation
      24. Balance Sheet (Including Intangible Assets)
      25. Current-cost-adjusted Financial Statements
      26. Balance Sheet
      27. Profit and Loss Account
      28. Economic Value-added (EVA®) Statement
      29. Economic Value-added Analysis
      30. Concluding Remarks
      31. Keywords
      32. References
      33. Exercises
    4. Appendix 1 Present Value of An Annuity of Rupee 1 Paid at The Year End
    5. Appendix 2 Present Value Factor of A Lump Sum (PVF) of Re
  12. Index
  13. Copyright