1.Management Accounting

2. What is management accounting ? It is the presentation of the accounting information insuch a way as to assist management in the creationof policy and in day to day operation of anundertaking . It comprises accounting methods , system andtechniques , which coupled with special knowledgeand ability , assist management in task ofmaximising profits or minimising losses . It is concerned with accounting information which isuseful to management . 3. Evolution Of MATraditional View Pre 1930s emphasis on financial markets and securitieslittle attention on asset management 1930s and 1940sfocus on legal matters dealing withbankruptcyrecognition of newly emerging governmentregulations 4. Criticism of Traditional View Treats the entire subject of finance from view point ofinvestment banker rather than a financial decisionmaker within the enterprise . Heavy emphasis on long term financial instrumentsand lack of emphasis on working capitalmanagement . Much emphasis on corporate finance , little attentionon the problems of non-corporate enterprises . Due to depression in 1930s and 1940s emphasisshifted on bankruptcy problems and liquidity crises . 5. Modern View 1950sincreased emphasis on asset management 1960sapplication of mathematical models theoretical development in cost of capital , dividendpolicy and risk analysis 1980s application of computer technology to assist in financialdecision making 1990s increased attention to international competition andmanagement of multinational business 6. Features It is a separate branch of accounting , provide usefuldata in decision making process . It is based on anticipated events . It is intermittent in nature . It does not follow any prescribed accounting format forreporting . It is only a technique adopted by management to deriveinformation . It is subjective in nature . It is inter-disciplinary subject . It depends upon informational needs of the management. It is mainly concerned with future events . It is a service function as it provides useful information tovarious levels of management . 7. Nature It is a branch of knowledge . It is a science . It is an art It is an extension of cost accounting . It is a profession . 8. Goal Of the Firms1.Profit maximisation ?This goal ignores :a) timing of returnsb) Uncertainty of returns2. Shareholders wealth maximisation ? This is the same as :a) Maximising firms valueb) Maximising stock price 9. Objectives Of MA1. Decision making :Types of decisionsInvestingFinancingOperating 10. Investment Decisions Determining the total amount of assets needed to beheld by the firm ( asset side of the B/S ) Investment can be :a) Investment in fixed assetsb) Investment in working capital Decision Rule : Investment in a particular asset can be acceptedonly if the return on investment is more than theminimum acceptable rate . 11. Investment DecisionsThe main types of investment decision can be :1. Fixed assets to be acquired .2. Investments in current assets .3. Buy or lease decisions .4. Asset replacement decision .5. Restructuring , merger and acquisition decision . 12. Finance Decisions Related to the procurement of funds ( liability side ofthe B/S ) - decision about debt and equity mix The long term asset should be financed with longterm funds and short term assets should be financedwith short term funds 13. Finance DecisionsThe main types of finance decisions can be :1. Determining the degree of leverage2. Determining the financing pattern of long , median and short term funds3. Arranging finance for working capital4. Decision about the interest burden on firm 14. Operating Decision It involves determining and planning short-termobjectives and goals concerning routine tasks . Examples of operating decisions include budgetingfor the number of employees, determining thecompanys cash needs, scheduling personnel orequipment, determining the appropriate level ofinventory, and planning production and sales. 15. Dividend Decision Concerned with how much profit to be distributed asdividend and how much is to be retained in business. If profit is paid as dividend , it influence the shareprice . If profit is not paid as dividend , it maximises thewealth of the shareholders . 16. Objectives Of MATHE BASIC OBJECTIVE The basic objective of management accountingis to assist the management in carrying outitsduties efficiently. The objectives ofManagement Accounting are: - The computation of plans and budgetscovering all aspects of the business.Example: production, selling, distribution,research and finance. The systematic allocation of responsibilities for implementation of plans and budgets. The organization for providing opportunities and facilities for performing responsibilities. 17. Objectives Of MA The analysis of all transactions, financial and physical, to enable effective comparison to bemade between the forecasts and actual performance. The presentations of up to date information, at frequent intervals, to management in the formof operating statements. The statistical interpretation of such statements in a manner which will be of utmost assistance to management in planning future policy and operation. 18. Objectives Of MA THE FUNDAMENTAL OBJECTIVE Planning and policy formulation:Planning involves forecasting on the basis ofavailable information, setting goals; framingpolicesdetermining the alternative courses of action and deciding on the program of activities.Management accounting can help greatly in this direction. It facilitates the preparation of statements inthe light of past results and gives estimation forthe future 19. Objectives Of MA Interpretation process: Management accounting is to present financial infor mation to the management. Financial information is technical in nature. Therefore, it must be presented in such away that it is easily understood. It presents accounting information with the help of statistical devices like charts,diagrams, graphs, etc 20. Objectives Of MA Assists in Decision-making process: With the help of various modern techniques manage ment accounting makes decision-making process more scientific. Data relating to cost, price, profit and savings for each of the available alternatives are collected and analyzed and provides a base for taking sound decisions. 21. Objectives Of MA Controlling:Management accounting is a useful for managerial control. Management accounting tools like standard costing and budgetary control are helpful in controlling performance. Cost control is affected through the use of standard costing and departmental control is made possible through the use of budgets . Performance of each and every individual is controlled with the help of management accounting. 22. Objectives Of MA Reporting:Management accounting keeps the management fully informed about the latest position of the concern through reporting. It helps management to t ake proper and quick decisions. The performance of various departments is regularly reported to the top management. 23. Objectives Of MA Facilitates Organizing: Return on Capital Employed is one of the toolsof management accounting. Since managementaccounting stresses more on Responsibility Centers with a view to control costs and responsibilities, italso facilitates decentralization to a greater extent.Thus, it is helpful in settingup effective and efficientlyorganization framework. 24. Objectives Of MA Facilitates Coordination of Operations:Management accounting provides tools for overall control and coordination of business operations.Budgets are important means of coordination. 25. Scope Of MA Financial accounting Cost accounting Statistical methods Operations research Organisation and methods Budgetary control Law Taxation Internal auditing Management information system Capital budgeting and investment decision 26. Functions Of Management Accounting Recording the data Validating the data Interpretation of dat Reporting the data Installation of sound accounting system Providing feedback reports Evaluating the performance of management