2. What is management accounting ?
It is the presentation of the accounting information in
such a way as to assist management in the creation
of policy and in day to day operation of an
undertaking .
It comprises accounting methods , system and
techniques , which coupled with special knowledge
and ability , assist management in task of
maximising profits or minimising losses .
It is concerned with accounting information which is
useful to management .
3. Evolution Of MA
Traditional View
Pre 1930s –
emphasis on financial markets and securities
little attention on asset management
1930s and 1940s
focus on legal matters dealing with
bankruptcy
recognition of newly emerging government
regulations
4. Criticism of Traditional View
Treats the entire subject of finance from view point of
investment banker rather than a financial decision
maker within the enterprise .
Heavy emphasis on long term financial instruments
and lack of emphasis on working capital
management .
Much emphasis on corporate finance , little attention
on the problems of non-corporate enterprises .
Due to depression in 1930s and 1940s emphasis
shifted on bankruptcy problems and liquidity crises .
5. Modern View
1950s
increased emphasis on asset management
1960s
application of mathematical models
theoretical development in cost of capital , dividend
policy and risk analysis
1980s
application of computer technology to assist in financial
decision making
1990s
increased attention to international competition and
management of multinational business
6. Features
It is a separate branch of accounting , provide useful
data in decision making process .
It is based on anticipated events .
It is intermittent in nature .
It does not follow any prescribed accounting format for
reporting .
It is only a technique adopted by management to derive
information .
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 to
various 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 Firms
1. Profit maximisation ?
This goal ignores :
a) timing of returns
b) Uncertainty of returns
2. Shareholder’s wealth maximisation ?
This is the same as :
a) Maximising firm’s value
b) Maximising stock price
9. Objectives Of MA
1. Decision making :
Types of decisions
Investing
Financing
Operating
10. Investment Decisions
Determining the total amount of assets needed to be
held by the firm ( asset side of the B/S )
Investment can be :
a) Investment in fixed assets
b) Investment in working capital
Decision Rule :
Investment in a particular asset can be accepted
only if the return on investment is more than the
minimum acceptable rate .
11. Investment Decisions
The 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 of
the B/S )
- decision about debt and equity mix
The long term asset should be financed with long
term funds and short term assets should be financed
with short term funds
13. Finance Decisions
The main types of finance decisions can be :
1. Determining the degree of leverage
2. Determining the financing pattern of long , median
and short term funds
3. Arranging finance for working capital
4. Decision about the interest burden on firm
14. Operating Decision
It involves determining and planning short-term
objectives and goals concerning routine tasks .
Examples of operating decisions include budgeting
for the number of employees, determining the
company's cash needs, scheduling personnel or
equipment, determining the appropriate level of
inventory, and planning production and sales.
15. Dividend Decision
Concerned with how much profit to be distributed as
dividend and how much is to be retained in business
.
If profit is paid as dividend , it influence the share
price .
If profit is not paid as dividend , it maximises the
wealth of the shareholders .
16. Objectives Of MA
THE BASIC OBJECTIVE
The basic objective of management accounting
is to assist the management in carrying outits
duties efficiently. The objectives of
Management Accounting are: -
The computation of plans and budgets
covering 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 of
available information, setting goals; framing
policesdetermining the alternative courses of acti
on and deciding on the program of activities.Man
agement accounting can help greatly in this direct
ion. It facilitates the preparation of statements in
the light of past results and gives estimation for
the 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 tools
of management accounting. Since management
accounting stresses more on Responsibility Cente
rs with a view to control costs and responsibilities, it
also facilitates decentralization to a greater extent.
Thus, it is helpful in settingup effective and efficiently
organization 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
