Doric Multimedia Pvt.

Ltd.

Branch I: 1st Floor, Gulati Market, Near

CMC Chowk,Ludhiana

Contact: 7696100090

Branch II: 1st Floor, Arora Tower, Jamalpur

Chowk,Chandigarh Road, Ludhiana

Contact: 8054100099
 Short Questions
1. Ques: Explain India’s approach to move towards IFRS.
Ans: India's approach to move towards IFRS
 The Institute of Chartered Accountants of India (ICAI) began the process of
transitioning to IFRS in 2006 in order to improve the acceptability and
transparency of financial reporting produced by Indian enterprises.
 The Government of India decided to converge with IFRS
 At the G20 conference in 2009, India pledged to adopting IFRS beginning in
2011.
 It was chosen to follow IFRS via convergence rather than adoption since
convergence allows for country-specific modifications.
 Indian Accounting Standards are accounting standards that have converged with
IFRS Called (Ind AS). Ind AS are a set of accounting standards announced by
the Government of India's Ministry of Corporate Affairs that are convergent
with IFRS. The Accounting Standards Board (ASB) of the Institute of
Chartered Accountants of India develops these standards.
 From April 1, 2015, India voluntarily introduced Ind AS for all firms (with
comparatives).
 Ind AS, on the other hand, became required for some enterprises on April 1,
2016.

2 Ques: Explain the elements of P&l statement.

Ans: Elements of Statement of Profit & Loss
 Sales/Revenue:
 Revenue is the total amount of income generated by the sale of goods or
services related to the company's primary operations.
 COGS:
 Cost of Goods Sold (COGS) are the direct costs associated with the
production of the goods sold in a company.
 Formula: COGS = Opening stock + Cost of Raw materials consumed
+ Direct labor + Any other Direct expense related to production –
Closing Stock
 Gross Profit: Gross profit is revenue minus the cost of goods sold (COGS).
 Operating Profit/Loss: Operating profit = gross profit – Operating
Expenses
 PBIT: PBIT stands for Profit before Interest and Taxes.
 PBIT = Operating Profit – non operating expenses + non operating
Income
 PAT: PAT is an abbreviation for Profit after Tax.
 It is the fraction of a company's profit that remains after tax costs have
been deducted.
 It is the amount/surplus left for the company's shareholders. The
company's management selects how much PAT may be delivered to
shareholders as dividends and how much PAT can be held as retained
earnings.

3. Ques: Explain Budget and budgeting.

4. Ques: Explain budgetary control

Ans: A control technique whereby actual results are compared with budgets. Any
differences (variances) are made the responsibility of key individuals who can
either exercise control action or revise the original budgets.
5Ques: Explain rolling budget.
Ans:

6 Ques: Explain term marginal cost .

Ans: Marginal cost: Marginal Cost is the additional cost that is incurred for
producing one additional unit of product. In other words, marginal cost can be
defined as a variable part of the total costs incurred for manufacturing a product. It
can also be termed as the amount of resources that can be saved by not making or
producing one unit of additional output.
7 Ques: Explain term marginal costing.
Ans: Marginal costing: "The ascertainment of marginal cost and the effect on
profit of changes in volume or type of output by differentiating between fixed and
variable costs."

8 Ques: How transfer price helps to reduce tax.

Ans: Transfer pricing is useful for tax purposes and results in tax savings. Tax
authorities do not favor such pricing as it helps companies to lower their tax
liability.
 Explaination:
 Suppose entity X purchased goods for 100 rupees and sells it to its
associated Entity Y in another country for 200 rupees, who in turn sells
in the open market for 400 rupees.
 If Entity X sold it direct, it would have made a profit of 300 rupees(400
– 100 i.e Selling price- Cost price), but entity X make profit of 100
rupees by make transfer it to entity Y.
 Entity Y in turn sells it in the open market for 400 rupees. Thus profit
made by entity Y is 200 rupees ( 400- 200).
 So entity X profit is less. As it is located in high tax country, so liable to
pay tax on less amount (rupees 100)
 Entity Y profit is more. As it is located in low tax country. So liable to
pay tax on high amount (rupees 200).
 So by using this process, company can avoid it all over tax liability.

9. Ques: Explain difference between cost reduction and cost control.

Ans:

10. Ques: Explain the concept depreciation and amortization.

Ans: Depreciation and amortisation both meant to reduce the value of the asset
year by year, but they are not one and the same thing. The difference between the
two must be appreciated. Writing off tangible assets for the period is termed as
depreciation, whereas the process of writing off intangible fixed assets is
amortization.
11. Ques: Explain golden rules of accounting.
Ans:

12Ques. Basic Definitions used in accounting.

 Assets: Assets are economic resources of an enterprise that can be usefully

expressed in monetary terms. Assets are items of value used by the business
in its operations. For example, Super Bazar owns a fleet of trucks, which is
used by it for delivering foodstuffs; the trucks, thus, provide economic
benefit to the enterprise. This item will be shown on the asset side of the
balance sheet of Super Bazaar. Assets can be broadly classified into two
types:
  Current Assets: Assets that are easily convertible into cash like
stock, inventory, marketable securities, short-term investments etc..
 Non-current Assets: Assets that are of a fixed nature in the context
that they are not readily convertible into cash. Land, building, plant,
machinery, equipment, and furniture etc.
 Liabilities: Liabilities are obligations or debts that an enterprise has to pay
at some time in the future. They represent creditors‟ claims on the firm‟s
assets. Both small and big businesses find it necessary to borrow money at
one time or the other and to purchase goods on credit. For example: Super
Bazar, purchases goods for 10,000 on credit for a month from Fast Food
Products on March 25, 2005. If the balance sheet of Super Bazaar is
prepared as of March 31, 2005, Fast Food Products will be shown as
creditors(current liability) on the liabilities side of the balance sheet. If Super
Bazaar takes a loan for a period of three years from Delhi State Co-operative
Bank, this non current liability will also be shown as a liability in the
balance sheet of Super Bazaar. Liabilities are classified as
 Current Liabilities : which is to be repaid within one year.
 Non-current liabilities: which is to be repaid after one year
 Capital:
  Income:

Long Questions:
1 Ques: Explain accounting and branches of accounting.
Ans: Introduction:

 Accounting is the art of recording, classifying and summarizing the

transaction and events that are of financial nature in a significant manner in
terms of money, and interpreting the result thereof.
 The art of recording involves writing the transaction of financial character
after the occurrence , in the records maintained by the company.
 The classifying is concerned with the systematic analysis of recorded data
under appropriate heads.
 The summarising is presenting data in a manner which is useful to internal
and external end users of accounts.
Branches Of accounting: There are many branches of accounting. But main
three branches explained below:
 Branches of
accounting

financial accounting Cost Accounting Management Accounting

it is a branch of accounting This branch of accounting is It is concerned with generating
which records financail concerne with ascertaining accounting information relating to
transaction and events. cost of products, process, funds, cost, profits etc as it enable
operations. management in making decisions.

1. Financial Accounting
 Generally, Financial accounting is used in accounting work and works to
show those accounting figures on a certain date of business.
 Financial accounting includes preparation of financial details to interpret and
Communication of information to the outsiders. Where the work of
bookkeeping ends. there starts the activity of accounting.
 Thus, the final step of financial accounting is the preparation of profit and
loss account and balance sheet. For every business, financial accounting has
become mandatory by law and other reasons.
2. Cost Accounting
 Cost accounting is also a branch of accounting. The process of determining
this cost and technical planning decision making and control is the basic
managerial task.
  Thus, The main purpose of cost accounting is to determine the cost of the
item or service. Cost accounting includes classification, recording,
allocation, and reporting of the current cost.
3. Management Accounting
 The area of management accounting is very large, it involves financial
accounting, cost accounting, budgeting, tax planning, management
information and other aspects of financial management.
 It provides accounting information for management decisions.
 Management accounting help the management in the formation of
policies, planning, and control of the operations of the business.
 Under this, the analysis and interpretation of financial accounting
accounts are done in such a way that managers may foresee, plan for the
future, and formulate policies.

2. Ques: who are the various users of accounting information.

Ans:

Internal users or Primary users of accounting information include:

1. Owners:
2. Management– Accounting information is of great assistance to management for
planning, controlling and decision making process. Also, management needs the
accounting information to evaluate the performance of the organization and
position, so that the necessary measures may be taken to bring improvements in
terms of business results. It is also needed for comparison of performance with
similar enterprises in the industry and to make plans for the future regarding
expansion, reduction, etc.
3. Employees – Employees use the accounting information to find out the financial
health, amount of sales and profitability of business to determine their job security,
the possibility of future remuneration, retirement benefits and employment
opportunities.

External users or Secondary users of accounting information include:

1. Creditors – Creditors are interested in accounting information, because it
enables them to determine the credit worthiness of the business. The credit terms
and standards are set on the basis of the financial health of a business, so, it helps
them to analyze by using the accurate information accordingly. Creditors include
suppliers and lenders of finance, such as banks.
2. Potential Investors: To evaluate an enterprise‟s strengths and decide whether to
purchase shares, prospective investors also require accounting information.
3. Customers – Customers are curious about an organisation‟s future, especially if
they depend on it or have a long-standing relationship with it. Accounting
information increases or decreases a firm‟s goodwill amongst its customers.
4. Regulatory Authorities – The accounting information is needed for them to
ensure that it is in accordance with the rules and regulations and that it protects the
interests of the stake holders who rely on such information.
5. Tax Authorities: To determine an enterprise‟s tax liabilities, tax authorities
need information. In order to compare the information on tax returns with the
supporting accounting records, tax authorities occasionally audit the returns filed
by firms.
6. Public:
3. Ques: Explain various principles of accounting.
Ans: Meaning: Accounting principles refer to various rules and guidelines that a
company is bound to follow while preparing and reporting financial data. These
principles aim to make the financial statements complete, consistent, and
comparable. This makes things easier for the insiders as well outsiders who have
an interest in the business.

Accounting Concepts: Accounting concepts are rules and guidelines that a

company follows to manage accounts that record financial transactions.
Government bodies and financial institutions legally recognise these concepts.
1. Monetary unit principle:
 The monetary unit principle states that all business transactions must be
in terms of money.
 Money is the common unit used for recording business transactions such
as capital, assets and liabilities.
 A business cannot report its assets as three buildings, two machines.
2. Business entity concept:
 The business entity concept states that the Business and its Owner (s) are
two separate entities.
 The personal transactions of the Owner are not recorded in the books of
accounts of a business.
  The assets and liabilities of the business are not treated as assets and
liabilities of the business owner, and vice versa.
 Whenever the Owner is contributing any money or money worth towards
the business, it is treated as capital, a liability for the business. And when
the businessman, withdraws certain goods, cash, it is treated as drawings.
3. Going Concern Principle
 It is presumed that the business is a going concern, i.e., it continues to
exist for an estimated period. This presumption is necessary because all
the business transactions are recorded in the books on this basis.
 As per his concept, fixed assets are recorded at their original cost, and
depreciation is charged on these assets without reference to their market
value.
 Because of the going concern, exterior parties enter into long-term
contracts with the enterprise.
4. Accounting Period Principle
 This principle states that the accounting process of the company will be
completed within a certain period.
 This period is usually a financial year or a calendar year.
 Thus, every transaction that takes place within that particular period of
accounting must be recorded in the financial statement of the company.
5. Accrual concept
 Under this concept, a business records a financial transaction in the
period it occurs. It does not consider whether the business pays or
receives cash at the time of the transaction. For example, a company
records a credit purchase at the time of purchase rather than when it pays
back the seller.
6. Historical cost concept:
 The historical cost concept states that a business may record assets and
liabilities at their historical cost rather than their current market or sale
value.
 It helps to maintain consistent, reliable and verifiable financial
information.
 7. Dual Aspect concept:
 Dual aspect concept states that every transaction affects two accounts of
a business. A business then records both aspects to enable accurate
accounting.
 This concept is the basis of the double-entry system. In accounting
language, this concept states for "every Debit, there is an equivalent
Credit".
 This concept is derived from the Accounting equation that equates
Assets with Liabilities plus Capital.

8. Realization concept:
 The realization concept states revenues should be recorded in the books
of accounts only when they are earned.
 Revenue is earned when goods/services associated with the revenue are
delivered or provided to customers by the business.
 Mere receipt of orders is not treated as Sales and Hence is not recorded
as a transaction in books of accounts.
9. Matching concept:
 This principle states that businesses must incur expenses to earn
revenues.
 Revenue earned should be matched with Expenses incurred in earning it
to calculate profit or loss.

Accounting Conventions: Accounting conventions are a set of practises that a

business entity follows over a period of time to prepare its accounts. The purpose
of accounting conventions is to guide accountants while they prepare financial
statements. The following are types of accounting conventions:
1. Convention of Full Disclosure
  According to this norm, all relevant information pertaining to the
company's financial concerns must be fully revealed.
 In other words, the information that is of material relevance to the users of
the financial statements should be disclosed.
 These users can be proprietors, present and potential creditors, investors,
and others. According to the Companies Act, the contents of the Balance
Sheet and Profit & Loss Account are to be disclosed.
2. Convention of Materiality
 This convention states that the company should not disclose such items
which have an insignificant effect or are irrelevant.
 This is an exception to the general rule of full disclosure.
 These useless elements are either left out or integrated with other relevant
items to remove unneeded burdens from the accounting statement. For
example, recording a stationery item of Rs.30 will not show any material
impact in the financial statements. Thus, the business accountant should
make the decision accordingly considering the materiality of the
transaction.
3. Convention of Conservatism or Prudence
 As per this convention, the company should record all anticipated losses
in the books of accounts but it should ignore all the unrealized gains.
 In short, it is the policy of playing safe. The company should make
provision for all known liabilities or losses to recover them even if the
amount is not known.
4. Principle of consistency
 The concept of consistency means that accounting methods once
adopted must be applied consistently in future. Also same methods and
techniques must be used for similar situations.
 Consistency concept is important because of the need for comparability,
that is, it enables investors and other users of financial statements to
easily and correctly compare the financial statements of a company.
4. Ques: Explain IFRS and its needs
Ans: Introduction: IFRS is considered as a globally recognized business
language. The full form of IFRS is the International Financial Reporting Standards.
It is a unique set of rules and regulations followed worldwide for recording
financial transactions of a business entity.
 In June 2003, its first copy was published by IASB.
 It is a collection of high-quality, internationally recognized financial
accounting standards that specify how certain kinds of transactions and other
events should be represented in financial statements.
 It aspires to create an uniform worldwide language for business activities so
that company accounting can be understood and compared across borders.

Need of IFRS
 Comparing different companies across countries became difficult due to a
lack of uniformity in their accounting guidelines. As a result, companies
had to prepare several sets of financial statements for different jurisdictions.
To resolve above problem a single set of high-quality widely recognized
accounting standards is required
 Need for harmonization of accounting policies and financial reporting.

 To have a common accounting language, so business and accounts can be

understood from company to company and country to country.
 To facilitate the investment climate of emerging and globalized economies
like India.
 To integrate the financial reporting of a specific country with the rest of the
economies of the globe.
 For making International Acquisitions for business growth.
 To enhance confidence among the global stakeholders for investing in
international market.
 To have a standard quality of MIS.
An MIS gathers data from multiple online systems, analyzes the
information, and reports data to aid in management decision-making.
5. Ques: Explain benefits of convergence with IFRS.
Ans: Benefits of Convergence with IFRS: Many beneficiaries will get benefit
from such convergence such as the economy, investors, industry, etc.
6. Ques: Explain advantages and disadvantages of accounting.
Ans:

Advantages of Accounting
A. Maintenance of business records: It records all the financial
transaction pertaining to the respective year systematically in the books
of accounts. It is not possible for management to remember each and
every transaction for a long time due to their size and complexities.
B. Preparation of financial statements: Financial statements like
Trading and profit and loss account, Balance Sheet can be prepared
easily if there is a proper recording of transactions. Proper recording of
all the financial transactions is very important for the preparation of
financial statements of the entity.
C. Benefits in Comparison: It facilitates the comparison of the financial
results of one year with another year easily. The format of accounting
for different businesses is the same, so one can efficiently compare their
business performance with the performance of other organisations.
Also, the management can analyze the systematic recording of all the
financial transactions according to the policies of the entity.
D. Benefits in Decision-Making: Decision making becomes easier for
management if there is a proper recording of financial transactions.
Accounting information enables management to plan its future
activities, make budgets and coordination of various activities in
various departments.
E. Evidence in legal matters: The proper and systematic records of the
financial transactions act as evidence in the court of law.
 F. Provides information to related parties: It makes the financial
information of the organization available to stakeholders like owners,
creditors, employees, customers, government etc. easily.
G. Benefits in Calculation of Tax Liabilities: Various tax authorities like
income tax, indirect taxes depends on the accounts maintained by the
management for settlement of taxation matters. The profit & loss
account presents the current year profit so that the individual/firm can
effortlessly calculate the tax liability.
H. Valuation of business: For proper valuation of an entity‟s business
accounting information can be utilized. Thus, it helps in measuring the
value of the entity by using the accounting information in the case of
sale of the entity.
I. Replacement of memory: Proper recording of accounting transactions
replaces the need to remember transactions.

Disadvantages of Accounting
A. Expresses Accounting information in terms of money: Non-
financial transactions cannot be given effect to in books of accounts.
Only transactions of financial nature are measurable by the accountant.
B. Accounting information is based on estimates: There are some
accounting data which are based on estimates. Thus, inaccuracy in
estimates is possible.
C. Accounting information may be biased: Accountants personal
influence affects the accounting information of the entity. Different
methods of depreciation methods and inventory valuation etc, can be
selected by the accountant. Due to the lack of objectivity, the income
arrived in certain cases might be incorrect.
D. Recording of Fixed assets at the original cost: There can be a
difference between the original cost and current replacement cost of a
fixed asset due to efflux of time, change in technology etc. Thus, the
balance sheet may not show the true financial status of an entity.
E. Manipulation of Accounts: The accountant or management can
manipulate or misrepresent the profits of an entity.
F. Money as a measurement unit changes in value: Stability in the
value of money is not possible. Accounting information will not show
 the true financial position if changes in the price level are not
considered.
G. Accounting Disregards Qualitative Element: It recorded all the
financial transactions which are presented in the monetary form. But
do not acknowledge staff, relations, public relations and emotion.
H. Can be Costly for a Small Firm: The small firm does not possess lots
of finance, so obtaining a proper account and auditing it from a
chartered accountant is very expensive.

7. Ques: Explain various features of corporate financial statement.

1. Understandability:
 The information provided in financial statements must be easily and
readily understandable to users of the financial statements.
 It means that information must be presented clearly, with additional
information supplied in the supporting.
 Even if the information is difficult to understand, it must be included if it
is of importance.
2. Materiality or relevance:
 Materiality or relevance refers to how useful the information is for
financial decision-making processes.
 Financial information is considered relevant if it has predictive value,
confirmatory value, and materiality.
 Materiality – Material information refers to information whose
existence or absence may affect or modify a decision- economic
maker's choice. The company's intention to shut 10 key branches in
the next fiscal year is substantial information.
  Predictive value – Financial information that has predictive value
can be applied to predict future information.
 Confirmatory value – Financial information that has confirmatory
value can provides information about past events.
 Thus, the information can be predictive or confirmatory and usually
both. The information about the dividend paid in the last year is
valuable information for a potential investor. Similarly, information
about the company's asset structure can help a user evaluate the
future of a company
3. Reliability or Faithful representation: Faithful representation, also known
as reliability. It is the degree to which information accurately reflects a
company's resources, obligatory claims, transactions, events, etc. reliable
accounting information must be complete, neutral, free from errors, and not
misleading.
4. Comparability: Financial statement should be comparable. Information
should be presented in such a way that will enable the user to compare
information with other business.
5. Full Disclosure or Completeness: According to the full disclosure
characteristic, company financial statements should provide complete and
accurate information about an enterprise's performance. If litigation is
ongoing and the company predicts they will have to pay a fine. However, the
amount of the fine is not predictable. This is essential information, so it
should be disclosed.
6. Prudence:

7. Standardized Format: Financial statement should be prepared in

standardized format that will enable user to make meaningful analysis.
8. Timeliness: financial statement should be prepared and presented at right
time. Delay in preparation will reduce the utility of these statement.
 9. Consistency: Companies should apply the same accounting standards and
policies throughout each accounting period. Consistency can also be helpful
in enhancing comparability between entities' financial statements.
10. Compliance: Companies in India must compile and report their financial
statements in accordance with Schedule III of the Companies Act, 2013.
11. Substance over form: The accounting treatment and presentation in the
financial statement of transactions and events should be governed by their
substance and not merely by the legal form. The ownership of an asset
purchased on hire purchase is not transferred till the payment of the last
installment is made, but the asset is shown in the books of the hire purchaser.
12. Verifiability: Verifiability is the extent to which information is reproducible
given the same data and assumptions.
13. Neutrality: Neutrality is often characterized as "independence from
"objectivity."

8. Ques: Explain various elements and components of financial statements.

Ans: Four main following financial statements are mandatory to get prepared and
published by companies. These financial statements are accessible to external and
internal stakeholder.

1. Balance Sheet: The balance sheet reports the business‟s financial position at
a particular point in time. It is also known as the Statement of Financial
Position or Statement of Financial Condition or Position Statement. It shows
the Assets owned by the business on one side and Capital contribution and
liabilities incurred by the business on the other side.
2. Statement of Profit & Loss: It displays the company's revenues,
expenditures, and expenses over a certain time period. It also displays if a
corporation is profitable or losing money over a certain time period. The
Statement of Profit and Loss is also known as the profit and loss statement,
income statement, statement of income, statement of operations, statement
of financial results or income, earnings statement, or expenditure statement.
3. Statement of changes in equity: Statement of changes in equity shows the
movement for equity. The term „owners equity‟ refers to the claims of the
owners of the business (shareholders) against the assets of the firm.
It consists of two elements:
(i) Paid -up share capital, i.e. the initial amount of funds invested by
the shareholders; and
(ii) Retained earnings/ reserves and surplus representing undistributed
profits.
The statement of changes in owners‟ equity simply shows the
beginning balance of each owner‟s equity account, the reasons for
increases and decreases in each, and its ending balance.

4. Cash flow statement:

9. Ques: Explain the concept artificial intelligence and its use in accounting.
Ans: Introduction:
 Artificial intelligence (AI) is a wide-ranging branch of computer science
concerned with building smart machines capable of performing tasks that
typically require human intelligence.
  From the development of self-driving cars to the proliferation of smart
assistants like Siri , AI is a growing part of everyday life.
 Artificial Intelligence (AI) allows systems to make forecasts and make
changes accordingly in the data– just as humans would. It renders computers
to perform machine-based learning, which earlier was left to humans.
Artificial Intelligence in Accounting
 Artificial intelligence is being used by many accounting firms where it
analyses a large volume of data at high speed, which would not be easy for
humans. That‟s why many Companies these days are accepting and
implementing new technologies to streamline their Accounting function.
 Increased productivity, improved accuracy, and reduced cost are benefits
that AI provides to business and accounting world.
 Machine learning in accounting : Artificial intelligence in accounting
software often comes in the form of machine learning, which is a type of AI.
Machine learning is the process of giving machines data so they can learn
from the data and make suggestions based on it. In accounting software,
machine learning can make labeling and grouping suggestions based on
what other users have done.
Let‟s look at an example. When you purchase something online, you may
receive recommendations for other items based on your purchase. The
system uses machine learning to make suggestions based on what other
people with “similar interests” have bought.
Accounting Tasks which Machines can Do: The following are some common
tasks that machines can perform with high efficiency and effectiveness
 Audit: It becomes an easy task to track about which file is accessed by
whom, when and how many times through Digitalization. AI assists in
Auditing function as auditors can easily have access to the digital files
during an audit.
 Procurement: Machines with APIs (Application Programming Interface)
can be integrated, and unstructured data can be processed. This makes the
procurement process paperless and easier. One can easily track the changes
in price among multiple suppliers with the help of AI.
  Accounts Payable/Receivable: The existing AI can make accounts
payable/receivable processing more streamlined with the help of digital
workflow. They can learn the accounting code for the respective invoice.
 Monthly or Quarterly Close Procedure: AI can give you data from
numerous sources, consolidate, and merge it. This would not only accelerate
up this monthly process but would also be bring more accuracy due to
involvement of machines.
 Expense Management: It can be a time-consuming process to review and
approve all the incomes and expenses. AI makes it much easier and quicker
as machines can check receipts, review expenses, and warn people if there is
any breach.
 AI Chatbots: Computers or machines can effectively resolve certain
common queries from users, such as when bills are getting due, the latest
account balance, and status on accounts with the help of AI chatbots.

10. Ques: Explain practical challenges in implementing Artificial intelligence.

Ans: The following is a list of some of the most common challenges companies
face when implementing AI:
a. Lack of understanding: one limitation is that leadership often fails to
realize the transformative impact AI can have on a company and the
opportunities it provides. It is crucial to understand what tools and AI
technologies are available to a company, as they are ever-increasing. In
addition, managers should analyze when to implement different AI projects
and have the critical mindset to prioritize the most critical AI projects that
need to be implemented first.
b. Lack of proper AI strategy: A lacking AI strategy is a significant
limitation to implementing the technology. Businesses must develop a
strong core team and find help from external consultants to overcome
integration challenges.
c. AI skills gap: Companies often hire new employees to take over AI-related
tasks. However, it is much more recommendable and far less risky to reskill
and upskill existing employees and give everyone good training on AI and
what opportunities it can provide to companies. There are several free
artificial intelligence courses, such as the one from Helsinki University.
 d. Cost and time: The cost and time required for AI solutions might make a
company reconsider using it, but patience is needed as it can result in huge
gains down the line. Due to the Covid-19 crisis some companies are forced
to look for a quick return on their AI projects. However, the leading value
companies can is the know-how to implement AI projects in the future.
e. Lack of trust: Because of a lack of understanding of AI technology and
how they can be used to generate business value, leadership can lose its
confidence in the importance of AI projects.
f. Cybersecurity: Cyber-attacks are an increasing threat, especially as more
businesses move online due to COVID-19. This can hinder an organization,
so it‟s essential to take adequate measures against these threats.

11. Ques: Explain various tools to analyse the financial statements

Horizontal Analysis:
 A horizontal analysis interprets the change in financial statements over two
or more accounting periods for the same firm.
 It helps determine a companies‟ growth and financial position versus
competitors.
 The horizontal analysis technique uses a base year and a comparison year to
determine a company‟s growth.
 It is also known as dynamic analysis.
 Horizontal financial statement analysis is done in two ways:
 Comparative statement analysis: An organization‟s financial
statements for different periods are called Comparative Financial
 Statements. These statements help in determining the performance
or financial position of the business by comparing financial data
from two or more accounting periods.
 Trend Analysis: Trend analysis is also an important part of the tools
and techniques of financial statement analysis. It is based on the
underlying premise that what has happened in the past indicates
what will happen in the future. It typically covers more than three
years of data. It allows to compare data points over a given period of
time and identify uptrends, downtrends, and stagnation.
Vertical analysis:
 It is the analysis of financial statements of an enterprise for one particular
period.
 This is also called static analysis.
 Vertical analysis, also called common-size analysis, is a financial analysis
tool that lists each line item on the financial statements as a percentage of its
total category.
 Vertical financial statement analysis is done in two ways:
 Common size statement analysis: It is also known as vertical
analysis. This method analyses financial statements by displays all
items as a percentage of a common base figure.
 Ratio Analysis:

12. Ques: Explain two types of comparative statements.

Ans: There are two types of comparative statements which are as follows.
1. Comparative income statement: comparative income statements provide
the progress made by the business over a period of a few years. This
 statement also helps in ascertaining the changes that occur in each line item
of the income statement over different periods.
Steps in preparing a comparative income statement
 Specify absolute figures of all the items related to the accounting period
under consideration.
 Determine the absolute change. Absolute change is difference between
previous year values with the current year values.
 Calculate the percentage change.
Percentage change = Absolute change *100
Previuos year values
2. Comparative balance sheet: Comparative balance sheet analyses the assets
and liabilities of business for the current year and also compares the increase
or decrease in them.
Steps in preparing a comparative balance sheet
 Determine the absolute value of assets and liabilities related to the
accounting periods.
 Determine absolute changes.
 Calculate the percentage change in assets and liabilities by comparing
current year values with values of previous accounting periods.

13. Ques: Explain two types of Common size statements.

Ans: There are two types of common size statements:
1. Common Size Income Statement: This is one type of common size
statement where the sales is taken as the base for all calculations.
Therefore each item will be expressed as a percentage of the sales.

2. Common Size Balance Sheet: A common size balance sheet is a

statement in which balance sheet items are being calculated as the ratio
of each asset in relation to the total assets. For the liabilities, each
liability is being calculated as a ratio of the total liabilities.
14. Ques: Explain the concept of Dupont Analysis.
Ans: Introduction: Dupont Analysis is Originally devised in the 1920s by
Donaldson Brown at DuPont Corporation, the chemical company. The model is
used to analyze the return on equity (ROE). DuPont Analysis is a framework used
to break apart the underlying components of the return on equity (ROE) metric to
determine the strengths and weaknesses of a company.

Step DuPont Analysis Formula: In a 3-step DuPont analysis, the equation states
that if a company‟s net profit margin, asset turnover, and financial leverage are
multiplied, you will arrive at the company‟s return on equity (ROE).
As the simpler , the return on equity (ROE) is broken into three ratio components:
 Net Profit Margin = Net Income ÷ Revenue
 Asset Turnover = Revenue ÷ Average Total Assets
 Financial Leverage Ratio = Average Total Assets ÷ Average Shareholders
Equity.
1. Net Profit Margin Ratio
 Net Profit Margin = Net Income ÷ Revenue
 The net profit margin represents a company‟s “bottom line” profitability. A
company‟s net income represents the remaining profits left over after
deducting all expenses including interest and tax to government.
 The net profit margin represent measures of operating efficiency
 If the net profit margin increases, each dollar of revenue will bring in more
earnings to the company, resulting in a higher return on equity (ROE).
2. Asset Turnover Ratio
 Asset Turnover = Revenue ÷ Average Total Assets
 The total asset turnover ratio is an efficiency ratio tracking the ability of a
company to generate more revenue per dollar of asset owned.
 If a company improves upon its turnover ratio, the ROE increases because
the implication is that it generate more revenue with fewer assets.
 Total asset turnover represent measures of asset efficiency.
3. Financial Leverage Ratio
 Financial Leverage Ratio = Average Total Assets ÷ Average
Shareholders Equity
 Financial leverage is the amount of debt in the company‟s capital
structure.
 The use of more debt financing leads to higher interest expenses, which
are tax-deductible that reduces the amount of taxable income and thus
increase ROE.
 The company must strike the right balance between benefiting from debt
financing but not placing excess leverage on the company, where the
company‟s cash flows are insufficient to handle all the debt obligations.

15.Ques: Explain basis of classification of cost.

 1. On the basis of 'Element' of Cost: The following figure is depicting the
classification of cost based on its elements.

I. Material
 Direct Material: It represents the raw material or goods necessary to
produce or manufacture a product. It is directly identifiable For
example: Milk is the direct material of ghee. Other examples are:
Timber in a furniture company, Cotton in the textile industry.
 Indirect Material: It refers to the material which we require to produce
a product but is not directly identifiable. For example: the use of nails
to make a table.
II. Labour
 Direct Labour: It refers to the amount which paid to the workers who
are directly engaged in the production of goods. For example:
Machine operators, Factory Workers, Engineers, Quality Control, Raw
material delivery workers.
 Indirect Labour: It represents the amount paid to workers who are
indirectly engaged in the production of goods. For example:
Accountants, security guards, managers.
III. Expenses
 Direct Expenses: It refers to the expenses that are specifically
incurred by the enterprises to produce a product. The production
cannot take place without incurring these expenses. For example:
Custom duty paid for importing the raw, Carriage inwards.
  Indirect Expenses: It represents the expenses that are incurred by the
organization to produce a product. These expenses cannot be easily
identified accurately. For example: Power expenses for the
production of pens, Rent, depreciation.
2. Classification by Traceability: On the basis of traceability, cost can be
classified as direct costs and indirect costs.
I) Direct Costs: These are the costs which are easily identified with a
specific cost unit or cost centers.it varies directly with level of production.
For examples: the materials used in the manufacturing of a product or the
labor involved with the production process.
II) Indirect Costs: These costs are incurred for many purposes, i.e. between
many cost centers or units. So we cannot easily identify them to one
particular cost center. It does not vary directly with the level of output. For
example: the rent of the building or the salary of the manager.
3. On basis of cost 'behavior': The following figure is depicting the
segregation of cost based on its behavior.

 Fixed Costs: Fixed costs do not change with change in production. The
per-unit fixed cost changes and become smaller as the number of units
produced increases.
Examples: Rent, advertising, insurance, depreciation, salaries.
 Variable Costs: It changes in direct proportion to the level of production.
Total variable cost increase when more units are produced and total
variable cost decreases when fewer units are produced.
Examples: Direct material, direct labor, direct expenses.
 Semi–variable Costs: It is a mixture of both fixed costs and variable costs
 Examples: Salesmen's Salary, Electricity charges, telephone charges.
4. On the basis of Controllability:
I) Controllable costs: These are the costs that can be controlled, as
altered by the action of an individual or a specific manager.
Generally, almost all direct costs such as material cost, labor costs,
and certain overhead expenses are controllable by the actions of the
lower levels of management.
II) Uncontrollable costs: On the other hand, uncontrollable costs are
not in control of the management. They cannot be influenced by any
action taken by managers or the firm. Most fixed costs like rent of
factory and overheads are uncontrollable costs
5. On the basis of Normality:

I) Normal Cost: The routine cost associated with the manufacturing of

goods or services under usual circumstances is called a normal cost.
It includes all direct expenses such as salary, material, rent, etc.
II) Abnormal Cost: The cost that arises suddenly and unknowingly
under unfavourable situations is known as abnormal cost. For
instance; workers go on strike, theft or robbery, fire in the premises,
etc.
6. On the basis of Function:

I) Production Cost: Production cost comprises of all the direct and

indirect costs incurred in the production of goods and services.
 II) Administration Cost: The costs involved in the management
activities of an organisation like electricity, stationery, telephone
expenses, rent etc. These are also known as administrative overheads.
III) Selling Cost: The indirect costs incurred on the sales function of the
goods and services like an advertisement, promotion, research,
customer service, etc. are clubbed under selling cost.
IV) Distribution Cost: Distribution cost refers to the cost incurred for
making the goods or services available to the customers. These are
warehousing, delivery service, transportation, etc.
V) Research and Development Cost: Research is essential to develop a
new product or modify an existing one. The cost incurred on the
research team, research implementation, findings, etc. comes under
this category
7. On the basis of 'Managerial Decisions:
I) Marginal Cost: Marginal cost is the cost of producing an additional
unit and its impact on the total cost of production.
II) Differential Cost: When there is an increment or decrement in the
cost of bulk production, the change in the cost of a single unit is also
determined which is known as differential cost.
III) Opportunity Cost: The value of one or more products given up to
acquire the desired product or service is known as opportunity cost.
For instance; while choosing green tea, a person has to give up the
value he must have derived from coffee or regular tea.
IV) Replacement Cost: When machinery or any other asset becomes
obsolete and a better asset is available in the market then replacement
cost is the cost of purchasing a substitute asset for the current asset
being used by a company.
V) Sunk Cost: The cost which has been born by the organisation in the
past and cannot be recovered at any stage of the business process is
termed as a sunk cost.
VI) Out of pocket Cost:
 8. On the basis of "Degree of Association with the product
I) Product Costs: Product cost is only incurred when some product is
acquired or produced. If there is no production of any goods, the
business will incur no product cost. Such costs form a part of the
inventory valuation. So costs like direct material, labor,
manufacturing costs, overheads etc are all product costs.
II) Period Costs: Costs which incur on the basis of time are Period
Costs. Examples include rent, salaries etc. These are costs are
necessary for the manufacturing of the product but cannot be assigned
to the products.

16. Ques: Explain various types of budget.

According To function:

 Sales Budget: The sales budget is a statement of planned sales in quantity

and value both. In sales budget, sale is forecasted during the budget period.
The sales manager is responsible for preparation of this budget. Other
functional budget are prepared on the basis of sales budget.

 Production Budget: The production budget is prepared for making a

estimate of quantity to be produced during the budgeted period. The
production manager is responsible for the preparation of production budget
and executing it. It is prepared on the basis of sales budget.

 Purchase Budget: purchase budget shows quantity and cost of material to

purchased during budget period. The purchase manager is entrusted with
the responsibility of making this budget. This budget is prepared on the
basis of production budget and material budget.

 Production Cost Budget: Production cost budget is prepared to show the

cost of production for the units of budgeted production. It is also known as
 manufacturing cost or work cost budget and includes cost of material, cost
of labour, cost of direct expenses and factory overheads.
 Labor Budget: In this budget, the labor requirements in the various job
categories such as unskilled, semi‐skilled and supervisory are determined
with the help of all the head of the departments.
 Selling and Distribution Budget: The Selling and Distribution Cost
budget is estimating of the cost of selling, advertising, delivery of goods to
customers etc. throughout the budget period. This budget is closely
associated to sales budget in the logic that sales forecasts significantly
influence the forecasts of these expenses.
 Administration Cost Budget: This budget includes the administrative
costs for non‐manufacturing business activities like managing directors‟
salaries, director‟s fees, office lightings, air condition and heating etc. Most
of these expenses are fixed so they should not be too difficult to forecast.
 Capital-Expenditure Budget: This budget stands for the expenditure on
all fixed assets for the duration of the budget period. This budget is
normally prepared for a longer period .
 Cash Budget:

According To Flexibility:
  Flexible budget: A flexible budget is a budget that changes as per the
activity level or production of units. Flexible budget changes as per the
fluctuations of business. It is very dynamic.
According to time:
 Long-Term Budget: A budget designed for period of 5 to 10 years is
termed as a Long-term budget. They are generally prepared in terms of
physical quantities.
 Short-Term Budget: Generally short-term budgets are prepared for a
period of one to two years. They are generally prepared in terms of
physical as well as in monetary units.
 Current Budget: The budget prepared for a period of a week, a
month, or a quarter is termed as a current budget.

17 Ques: Explain zero base budgeting, its process and merits , demerits.
Ans: Introduction:
 As the name says “Zero-based budgeting” is an approach to plan and
prepare the budget from the scratch. Zero-based budgeting starts from
zero.
 With this budgeting approach, you need to justify each and every expense
before adding it to the actual budget.
 The primary objective of zero-based budgeting is the reduction of
unnecessary costs by looking at where costs can be cut.
 To create a zero-base budget involvement of the employees is required.
You can ask your employees what kind of expenses the business will
have to bear and figure out where you can control such expenses.
 If a particular expense fails to benefit the business, the same should be
axed from the budget.

Zero-based budgeting process

Step 1: Business goal: When the new accounting period starts, the first step is to
clarify and specify your business goals. Is your main aim to cut costs or is it to
increase profits or both? Start with a single business goal and then ensure that the
goal is measurable.
Step 2: Activities to achieve the goal: This zero based budgeting step involves the
activities that you need to undertake to achieve the business goals you set in the
first step
Step 3: Determine cost drivers: Next, you must determine the costs associated
with the actions you need to perform to achieve business goals. Add the costs that
are already associated with operating and maintaining your business if those are
necessary expenditures.

18. Ques: What are various methods of pricing material issues. Explain LIFO
and FIFO.
Ans: Pricing of materials refers to valuation of materials issued by the stores
department for the production process. Pricing of materials should be done by
adopting the method which is suitable for nature of materials and business itself.
The methods applied for pricing of materials are as follows:
 FIRST-IN-FIRST-OUT METHOD (FIFO): Under this method, the
materials received first are issued first. So the price paid for the earliest lot
of materials in hand is taken as the basis of charging out the materials issued.
Advantages:
 It is simple to apply.
 The closing value of materials in this method is close to the current
market prices.
 It is based on a realistic assumption that materials are issued in the
order of the receipts.
 This method is easy to understand.
 If purchase are few the method will be suitable.
 This method is useful when prices are falling.
Disadvantages:
 In times of inflationary periods, the cost as per FIFO method will not
reflect the current market conditions.
 It does not present accurate picture, when many lots are purchased.
 If prices are rising , then production cost is understated.
 LAST-IN-FIRST-OUT METHOD (LIFO): Under this method, the
material received in last is issued first. The price of the latest material is
taken as base for pricing of materials. This method requires the maintenance
of record of quantity and value of every receipt of material.
Advantages:
 This method is simple to apply.
 This method operate particularly when prices are fairly steady.
  Under this method materials are charged to production (material
issued) at the latest prices paid.
 When prices are rises this method is safe and profitable.
 Due to the effect of inflation in the cost of production, the reduced
profit margin results in saving of lax.
 This method is easy to operate where purchase are made frequently
less frequently.
Disadvantages
 Under this method, closing stock is valued at the old prices and
does not represent the current economic value.
 The stock may be under-valued or over-valued as the closing stock
shall not reflect the current market prices.
 When prices fluctuate this method becomes complicated.

19. Ques: Explain the impact of LIFO and FIFO on material cost, closing
stock, profits, and on tax.
Ans: Impact of both methods on material cost, closing stock, profits, and on tax.
Factors LIFO method FIFO method
Increasing prices:
1. Material cost (issued) Higher(as latest stock Lower ( as oldest stock
Or Cost of production purchased at high price is purchased at lower prices
issued first) issued first)

2. Closing stock Lower Higher

3. Profits Lower (as material cost is Higher( as material cost is

high) lower)

4. Tax Lower (as profits are Higher( as profits are high)

high)
Decreasing Prices:
1. Material cost (issued) Lower(as latest stock Higher ( as oldest stock
purchased at low price is purchased at high prices
issued first) issued first)

2. Closing stock Higher Lower

3. Profits Higher (as material cost Lower( as material cost is

is low) high)

4. Tax Higher (as profits are Lower( as profits are low)

high)

20. Q: Explain the concept of CVP analysis, its assumptions and objectives.
Ans: Full form of CVP is cost volume profit analysis.
21 Ques: Explain elements of CVP analysis.
Ans: There are five elements of CVP analysis.

1. Marginal cost Equation:

2. Contribution Margin:
3. Profit / Volume Ratio (P/V ratio):

When 2 years information is given, then formula is

P/V Ratio = Change in profit

Change in sale

4. Margin Of safety: The margin of safety is a tool used in CVP analysis. A

business is profitable when revenue exceeds the costs. A part of the revenue is used
to cover the breakeven costs, while the remaining part is profit. This remaining part
is called the Margin of Safety. In other words margin of safety is difference
between the actual or expected Sale and break even sale.

Formulas:

In Rupees In Units
Margin of safety = Profit
Contribution per unit
5. Break even Analysis:
 Break-even analysis examines the relationship between the firm's total
revenue, total costs, and total profits at various output levels.
 The point at which total fixed and variable costs are equal to total
revenues is known as the break-even point.
 At the break-even point, a business does not make a profit or loss.
Therefore, the break-even point is often referred to as the "no-profit" or
"no-loss point."
 The break-even analysis is essential to business owners and managers in
determining how many units (or revenues) are needed to cover fixed and
variable expenses of the business.
 Formulas:
In Units In Rupees

 Graphic presentation:

6. Desired Profits:
22. Ques: Explain transfer pricing and its methods.
Ans: Transfer Price is the price that related parties charge to each other. For
example: if a subsidiary company sells goods to a parent company, the cost of
these goods paid by the parent to subsidiary is the transfer price.
In simple words, we can say it is the price at which different departments in a
company transfer goods to each other.

In above figure, business unit A transfer product w to business unit B. The

price at which transfer is made is known as transfer pricing. Business unit B
can buy either this product from business unit A or from external market.
and Business unit A also can either sell it to business unit B or to external
market.
 The reason behind deducting selling cost from market price is that no
selling efforts are required to sale the goods to buying divisions.
23. Ques: Explain responsibility accounting and its features or components.
24. Ques: Explain various steps involved in responsibility accounting.
Ans: Following are the steps involved in responsibility accounting.
25. Ques: Explain various types of resonsibility centre.
Ans:
 3. Revenue Centre:

4. Investment Centre:
26. Ques: Explain advantages and disadvantages of responsibility centre.
Ans:

Limitations of Responsibility Accounting :

1) Classification of Costs: For responsibility accounting system to be
effective, a proper classification between controllable and non-controllable
costs is a prime requisite. But practical difficulties arise while doing so, on
account of the complex nature and variety of costs.
 2) Inter-departmental Conflicts: Separate departmental pursuits may lead
to inter-departmental rivalry. Managers may act in the best interests of their
own, but not in the best interests of the enterprise.
3) Delay in Reporting: Responsibility reports may be delayed. Each
responsibility centre can take its own time in preparing reports.
4) Overloading of Information: Responsibility accounting reports may be
overloading with all available information.
5) Complete Reliance Will Be Deceptive: Responsibility accounting can't
be relied upon completely as a tool of management control. It is a system
just to direct the attention of management to those areas of performance
which required further investigation.
6) Difficulty in preparing organization chart: Preparation of an
organisation chart which clearly define lines of responsibility and authority
is a difficult task

27. Ques: Explain ABC costing and steps involved in it.

Ans:

The five steps are as follows:

Step 1. Identify activities required to complete products: An activity is
any process or procedure that consumes overhead resources. The goal is to
understand all the activities required to make the company‟s products.
Companies that use activity-based costing may identify hundreds of
activities required to make their products. The most challenging part of this
 step is narrowing down the activities to those that have the biggest impact on
overhead costs.
Step 2. Assign overhead costs to the activities identified in (step 1): This
step requires that overhead costs associated with each activity be assigned to
the activity (i.e., a cost pool is formed for each activity). The cost pool for
the purchasing materials activity will include costs for items such as salaries
of purchasing personnel, rent for purchasing department office space, and
depreciation of purchasing office equipment.
Step 3. Identify the cost driver for each activity: A cost driver is the
action that causes (or “drives”) the costs associated with the activity.
After careful scrutiny of the process required for each activity, the company
will establish the cost drivers. This information includes an estimate of the
level of activity for each cost driver, which is needed to calculate a
predetermined rate for each activity.
Step 4. Calculate a predetermined overhead rate for each activity: This
is done by dividing the estimated overhead costs (from step 2) by the
estimated level of cost driver activity (from step 3). This provides the
overhead rate calculations for the Company for each activity.

Step 5. Allocate overhead costs to products: Overhead costs are allocated

to products by multiplying the predetermined overhead rate for each activity
(calculated in step 4) by the level of cost driver activity used by the product.

28. Ques: Difference between traditional and ABC costing.

Ans:
30. Ques: Explain various decisions involving alternative choices.

Ans. Introduction:
 It means the process of choosing among alternative course of action,
since if there is no choice there is no decision to make.
 Every management decision deals with future, there is no
opportunity to alter the past.
 The function of decision maker is to select course of action for
future.
 Decision making is essence of management since it may make the
success of business as a whole.
Essential Areas of Decision Making or Application of Marginal
Costing

Key Factor
Determinat
Profit ion of
Planning
Sales Mix

Decision to Fixing of
Accept a
Bulk Order
Areas Price

Exploration Make or
of New Continue Buy
Marker
or Decision
Discontin
ue a
Product
Line

1. Determination of Sales Mix:

 In the market various companies offer dealership to the individual
retailer in promoting sales of product.
 Before reaching any agreement with the company. Every retailer
considers the profitability of the product mix offered by firm/
company.
 Examples of sales mix: 250 units of x and 250 units of y.
400 units of y only.
400 units of x and 250 units of y.
 In these cases if fixed cost remain unaffected then decision
regarding sales mix is taken on the basis of contribution per unit of
each product.
 Basis of Decision

The product which The product which The product which

give high contribution give less contribution give negative
per unit gives more per unit given less contribution is
priority priority discontinued.

2. Exploration of New Market: Decision regarding selling goods in the

new market whether Indian or foreign should be taken after
considering the following facts:
 Whether the firm has surplus capacity to meet new demand.
 What is the price is being offered by new market. It should be
greater than the variable cost plus additional expenditure incurred
by firm.
 Whether the sales of goods in new market affects the present
markets of goods.
3. Continue or Discontinue a Product Line:
 Marginal costing techniques tell how much each product
contributes towards fixed cost and profit.
 The product or department that gives most negligible contribution
should be discarded.

Choosing Criteria

The product which

Those giving least
gives highest
contribution should
contribution should
be discontinue.
be chooser.

 Following factors should be consider before deciding the

discontinue of the product line:
 Contribution given by the product.
 Capacity utilization.
 Effect of sale on other product.
  Availability of product to replace the product which the firm
wants to discontinue.
 Long term prospect in the market for the product.
4. Make or Buy Decision:
 It is a determination whether to produce a component internally
or to buy from an outsider supplier.
 Under such circumstances, two factors are to be considered:
Whether surplus capacity is available and
The marginal cost of per unit manufacturing
 The marginal cost for both alternatives should be calculated and
the alternative with a least cost should be accepted.
Choosing
Criteria

If the company does not have if the company ha idle

idle capacity to produce capacity . it can chhose to
product thenm management make the product if cost of
opt to buy it from the outside manufacturing is less than
supplier. cost of buy it from outside.

Criteria for Buy Criteria for Make

Following factors will force Following factors will force
the firm to buy product. the firm to buy product.
 High investment required  The product can be
for making. made cheaper by the
 Doesn’t have facility for firm.
making.  The part can be
 Skilled workers are not manufactured from the
available. existing facility.
 Demand is temporary or  The part needs extremity
seasonal. quality the control.
 Patent or legal formality  The product is being
prevent for making the manufactured only by
product. limited number of
outside firm which are
unable to meet the
demand.

5. Key-Factor:
 key-factor is that factor which put limit on the production and
profit of the business.
  Business has capacity to sell it’s entire product but production is
limited due to the shortage of material, labor, power, machine,
etc.
 Steps used in decision making:
 Identify key factor. Examples of key factors are: shortage
of raw material, shortage of labor, plant capacity
available, sales capacity available, and cash availability.
 Find contribution per unit of each factor
= Contribution of product
Key factor
 Product with highest contribution per unit is given
priority.
 When key factors are operating the most profitable
position is reached when contribution per unit of key
factor is maximum.
6. Profit Planning:
 It is essential function of management.
 It relates to attainment of maximum profit.
 Profit planning required the management to have the proper
knowledge of inter relationship of selling price, sales value,
variable cost, fixed cost.
 Management can ascertain the profit position at various level of
operation through the CVP analysis.
 Thus management can plan its operation at that level where
profits are maximum.
 Vertical balance sheet format

Particulars Note Figures as at the end of Figures as at the end of

No. the current reporting the previous reporting
period period

I. EQUITY AND LIABILITIES

1.Shareholders’ Funds

a.Share Capital XXXX XXXX

b.Reserves and Surplus XXXX XXXX

c.* Money Received Against XXXX XXXX

Share Warrants

2. * Share Application
Money Pending Allotment

3. Non-current Liabilities

a.Long-term Borrowings XXXX XXXX

b.* Deferred Tax Liabilities XXXX XXXX

(Net)

c.* Other Long-term XXXX XXXX

Liabilities

d.Long-term Provisions XXXX XXXX

4. Current Liabilities

a.Short-term Borrowings XXXX XXXX

b.Trade Payables XXXX XXXXX

c.Other Current Liabilities XXXX XXXX

d.Short-term Provisions XXXX XXXX

Total

II. ASSETS

1.Non-current Assets

a.Fixed Assets
1.Tangible Assets XXXX XXXX

2.Intangible Assets XXXX XXXX

3.* Capital Work-in-progress XXXX XXXX

4.Intangible Assets under XXXX XXXX

Development

b. Non-current Investments XXXX XXXX

c.* Deferred Tax Assets (Net) XXXX XXXX

d. Long-term Loans and XXXX XXXX

Advances

e.* Other Non-current Assets XXXX XXXX

2. Current Assets

a.Current Investments XXXX XXXX

b.Inventories XXXX XXXX

c. Trade Receivables XXXX XXXX

d. Cash and Cash XXXX XXXX

Equivalents

e. Short-term Loans and XXXX XXXX

Advances

f. Other Current Assets XXXX XXXX

Total