Fundamentals of Accounting and Financial Analysis (For U.P.T.U.)

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Cover Contents Syllabus Road Map Preface Acknowledgements Chapter 1: How Accounting Evolved 1.1 Introduction 1.2 Objectives of Accounting 1.3 Accounting Functions 1.4 Terms Used in Accounting Account Debtors Creditors Capital Goods Asset Equity Revenue Expenditure Expenses Loss Turnover Vouchers Drawings 1.5 Role of Accounting Accounting as an Aid to Management in Solving Strategic Business Problems Accounting as an Aid to Solve the Initial Product–Market Problem Strategic Problems of an Existing Business Accounting as an Aid to Management in Solving Tactical Business Problems Accounting as an Aid to Management in Planning and Control Special Advantage of Accounting as an Aid to Management Management Control 1.6 Evolutionary Characteristics of Accounting Accounting Book-Keeping Business and Economic Policies of the Government International Arena 1.7 Use of Accounting Information Efficient Working of the Business Undertaking—Points for Consideration 1.8 Conclusion Case Study Hints Questions/Exercises Chapter 2: Accounting Concepts, Principles and Conventions 2.1 Overview Business Transaction Debit and Credit Three Golden Rules for Recording Financial Transactions Significance of Debits/Credits 2.2 Accounting Concepts Money-Measurement Concept Business-Entity Concept Going-Concern Concept Cost Concept Dual Aspect Concept Accrual Concept Realization Concept 2.3 Accounting Conventions and Principles Consistency Conservatism Materiality Cash and Mercantile System Accounting Postulate 2.4 Accounting Equations Questions/Exercises Chapter 3: Accounting Standards: Indian vís-a-vís International 3.1 International Accounting Principles and Standards 3.2 Financial Accounting Standards Board (FASB) 3.3 International Auditing Practices Committee (IAPC) 3.4 Differences Between Indian GAAP and U.S. GAAP 3.5 International Standards on Auditing 3.6 Indian Accounting Standards Compliance with the Accounting Standards 3.7 Indian Accounting Standards vis-a-vis Corresponding International Accounting Standards 3.8 Accounting Treatment Recommended by Indian Accounting Standards vis-a-vis International Accounting Standards Questions/Exercises Chapter 4: Foundation of Accounting System 4.1 Account 4.2 Accountancy 4.3 Accounting 4.4 Double-Entry System of Accounting 4.5 Various Types of Accounts 1. Personal Account 2. Real Account 3. Nominal Account 4.6 Golden Rules of Debit and Credit with Reference to the Different Types of Accounts Characteristics of the Double-Entry System Classification of Accounts 4.7 Accounting Cycle and Books of Original Entries Trading Account Profit and Loss Account Balance Sheet Books of Secondary Entry Source Documents 4.8 Journal Steps in Journalizing Rules for Making Journal Entries Case Study Hints Questions/Exercises Chapter 5: Fundamentals of Financial Statements 5.1 Ledger 5.2 Differences Between Journal and Ledger 5.3 Relationship Between Journal and Ledger 5.4 Rules of Posting 5.5 Closing and Balancing of Accounts Closing of Personal Accounts Closing of Real Accounts Closing of Nominal Accounts 5.6 Trial Balance 5.7 Methods of Preparing the Trial Balance Totals Method Net Balance Method 5.8 Rectification of Errors 5.9 Classification of Errors 5.10 Capital and Revenue 5.11 Classification of Capital and Revenue Items Capital Expenditure and Revenue Expenditure Revenue Expenditure Becoming Capital Expenditure Deferred Revenue Expenditure Difference Between Capital Expenditure and Revenue Expenditure Capital Receipts and Revenue Receipts Capital Loss and Revenue Loss Capital Profit and Revenue Profit 5.12 Depreciation Policies and Various Methods Related to Depreciation Various Methods of Charging Depreciation Treatment of Depreciation for Non-Profit Undertakings Reserves for Bad and Doubtful Debts Bad Debts 5.13 Provisions Provision for Bad Debts Provision for Discount on Debtors Case Study Assignment Questions/Exercises Chapter 6: Financial Statements for Corporate Sector and Recent Changes in Accounting Disclosures 6.1 Preparation of Financial Statements 6.2 Manufacturing Account 6.3 Trading Account Preparation of the Trading Account Items Written on the Credit Side of the Trading Account Closing Entries Related to the Trading Account 6.4 Profit and Loss Account Need and Importance of the Profit and Loss Account Preparation of the Profit and Loss Account Items Written on the Debit Side of the Profit and Loss Account Items Written on the Credit Side of the Profit and Loss Account Closing Entries Related to the Profit and Loss Account 6.5 Balance Sheet Arrangement of Assets Liabilities 6.6 Important Provisions of the Companies Act, 1956, in Respect of the Preparation of Final Accounts Books of Accounts Prior Period Items Extraordinary Items Changes in Accounting Policies Contingencies Events Occurring after the Balance Sheet Date Disclosure Distinction between Debentures and Shares 6.7 Sebi’s (Securities and Exchange Board of India) Guidelines Regarding Issue of Bonus Shares 6.8 Buy-Back of Shares Employee’s Stock Option 6.9 Sweat Equity Shares 6.10 Final Accounts Under the Companies Act, 1956 Requirements of the Profit and Loss Account General Principles Importance of the Matching Revenue and Expenditure As-5 (Revised) Scope of the Statement Net Profit or Loss for the Period Changes in Accounting Estimates Changes in Accounting Policies As-4 (Revised): Contingencies and Events Occurring after the Balance Sheet Date Introduction Definitions Accounting Treatment of Contingent Losses Accounting Treatment of Contingent Gains Events Occurring after the Balance Sheet Date Disclosure Requirements Contingencies Some More Common Events Occurring after the Balance Sheet Date Disclosure Part III Provisions Application to Part I and II of this Schedule Notes Form of Balance Sheet Relevant Abstracts Taken from the Published Accounts of M/S Larsen and Toubro Limited 6.11 Accounting for Inflation 6.12 Accounting for Human Resources in an Organizations Brand Valuation Current Cost Adjusted Financial Statements Intangible Assets Score Sheet The Score Sheet Economic Value-Added Statement (EVA) Value Reporting Value Reporting Disclosure Model Notes on Accounts and Audit Reports Questions/Exercises Hints/Answers Chapter 7: Analysis of Financial Statements 7.1 Introduction Requirements of Interpretation of Financial Statements 7.2 Ratio Analysis Concept of Ratios Development of Accounting Ratios 7.3 Solvency Ratios Significance of the Current and Quick Ratio 7.4 Profitability Ratios and Activity Ratios Overall Profitability Ratios 7.5 Liquidity Ratios Ratios to Assess the Financial Health and Strategic Policies of the Organization 7.6 Proprietary Ratios Reserves to Capital Dividend Payout Ratio Price Earning Ratio Debt-Service Ratio Capital Gearing Ratio Trend Percentage 7.7 Internal and External Analysis Dupont Control Chart Management Achievement Chart Application of Ratio Analysis in the Financial Decision Making Limitations of the Financial Ratios Questions/Exercises Chapter 8: Financial Statements for Insurance and Banking Sector 8.1 Common Size Statement 8.2 Comparative Balance Sheet 8.3 Trend Analysis Trend Percentage Analysis 8.4 Balance Sheet of the Insurance Companies Under Respective Statutes of IRDA 8.5 Banking Companies’ Accounts Provisions for Statutory Reserves (S.R) Cash Reserves and Statutory Liquidity Reserve (C.R and S.L.R) Books of Accounts Required to be Maintained by the Banking Company’s Act Notes on Disclosure of Accounting Policies Questions/Exercises Chapter 9: Concept, Construction and Analysis of Funds Flow Statement 9.1 Funds Flow Statement Meaning Sources of Funds Application of Funds Additional Information Objectives of Funds Flow Statement Sources of Funds Internal Sources of Funds External Sources of Funds Utilization of Funds Net Profit Increase in Liabilities Decrease in Assets Contribution of Additional Funds Net Loss Decrease in Liabilities Increase in Assets Decrease in Capital Funds Payment of Dividend in Cash 9.2 Importance of Funds Flow Statement 9.3 Preparation of Funds Flow Statement Statement of Source and Application of Funds 9.4 Analysis of Funds Flow Statement 9.5 Concept of Gross and Net Working Capital Gross Working Capital Net Working Capital Permanent Working Capital Temporary Working Capital 9.6 Working Capital Cycle vis-a-vis Operating Cycle 9.7 Limitations of Funds Flow Statement Questions/Exercises Chapter 10: Cash Flow Statement Importance and Application 10.1 Cash Flow Statement 10.2 Various Terms Defined in the Accounting Standards (AS-3) Cash Cash Equivalents 10.3 Various Cash and Non-Cash Transactions Concept of Working Capital Operating Activities Investment Activities Financing Activities Non-Cash Transactions Interest and Dividends Extraordinary Items Foreign Currency Cash Flows 10.4 Recommended Proforma of Cash Flow Statements (Under AS-3 Revised) Direct Method Indirect Method 10.5 Cash Flow Analysis vs Funds Flow Analysis Questions/Exercises Chapter 11: Case Studies Case 1—Ram Luxman & Sons (RLS) Hints Case 2—Vimal Textile Machinery Company (VTMC) Assignment Hints Case 3—Wave Multiplex Commercial Complex (WMCC) Assignment Case 4—Star Semiconductor Corporation Limited (SSCL) Assignment Case 5—Ranjan’s Cafe (RC) Assignments Case 6—Senior Citizens’ Paradise Project (SCPP) Case Questions Case 7—Benazir Rivet Company (BRC) Case Questions Case 8—Sporty Equipment Company (SEC) Assignment Case 9—Progressive Company Limited (PCL) Hints Case 10—Sabrose Air Components Corporation Limited (SACCL) Assignments Case 11—Indian Plastics Company Limited (IPCL) Hints Appendix I. Present Value and Discount Tables II. Notes on Accounts and Audit Reports III. Sample of Statutory Audit Report of M/S. Ultratech Cement Limited Auditor’s Report Annexure to the Autidor’s Report IV. (A) Applicability of Accounting Standards Accounting Standards Applicable to All Enterprises (Levels I, II & III) Exemptions/Relaxations for Small and Medium Sized Enterprises (B) List of Mandatory Statements and Standards Level I Enterprises Level II Enterprises Level III Enterprises Annual Reports 85Th Director’s Report to the Members of M/S. Tata Power Along with Audited Financial Statements Index