g stock = 2,000 units

Value of Closing Stock/Inventory = Units x Variable Costs

= 2,000x (3.50 + 0.50]
= 2,000x 4
=8,000
3. Opening Stock: Closing stock of 2018 will be
stock for 2019 as all units are the opening stock for 2019. However,
sold. there is no closing
1,2.3 Dimerences Between Marginal Costing and Absorption Costing
Q19. Explain the differences between marginal costing and absorption costing.
Answer:
Differences between Marginal Costing and Absorption Costing
are as follows,
SNo Basis Marinal Costing Absorption Costing
1. Meaning Marginal costing is the technique of Absorption costing is
costing,charging only variable costs to the technique of costing,
operations. charging all costs both
variable and fixed to
operations, processes and
products.
2. Nature It is a production oriented. It is a sales oriented.
3. Classification of Cost It divides costs on the basis of their It divides costs on
behavior i.e. variable or fixed costs. functional basis i.e.
production, administration,
selling & distribution.
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 MANAGEMENT
12 COST CONTROL
AND
ACCOUNTING
S.No Basis
Marginal Costing Absorption Costing
as product cost It is said to be full
4. Cost Treatment Variable costs are treated
cost are treated as period
cost. costing' where both
and fixed
variable and fixedcosts are
treated as product cost.
considered while Work in process and
5. Valuation of Stock Variable costs are
the work in process finished goods are valued
computing the value at works cost and total cost
closing
and finished goods. Thus, the
compared to of production respectively,
stock is undervalued when that include the amount of
Absorption costing.
fixed overheads also.
effective This technique poses
6. Managerial Decision Thistechnique is very useful and a problem to the
Making in taking managerial decisions.
management in taking
managerial decisions.
7 Cost per unit The cost per unit remains the same Cost per unit reduces as
irrespective of the level of production. the production increases
since the fixed cost per
unit reduces, but the
variable cost proportion
remains the same.
Cost Data It determines Contribution. It determines Net Profit.
9. Profitability The profitability of each individual sale The proftability will
will appear to be highér. appear to be lower.
10. Costing System It is easy and simple to operate. It is difficult to understand
11. Reports and operate.
It iscomplimentary to standard
and budgetary control. costing lt may not possible to
prepare flexible budgets.
CVP ANALYSIS
o20, Explain the concept of CVP
Answer :
analysis in detail.
Cost-Volume-Profit (CVP) Analysis
Cost Volume Profit
between cost,
(CVP) analysis is a
volume and technique which is used for
important of these factors profit. Profits of an
are the cost of organization depends upon astudying the relationship that exist
According to Heiser, "the manufacture, volune of sales large number of factors. The mos
hip between the most significant and the selling
volume of single factor in profit prices of the products.
profit planning. business, costs and
of CVP Analysis profits". The CVP planning of the average business i
relationship is an important tool whic
Following are the objectives of CVP analysis,
To help in fixing of :selling prices.
Ae
 CoSTAND CONTROL MANAGEMENT ACGOU

46
AND ANSWERS
Q U E S T I O N S s

UNIT-2: Budgetary Control ane

PART- B:
ESSAY

BUDGETARY
CONTROL -
MEANING.
OBJEC Q10. Define Budget and writ
and advantages of budc
how the.
ADVANTAGES AND DISADVANTAGES

2.1 BUDGET AND Explain are

Answer:

budgetary
control. dftere Definitions of Budget

budget and ACCording to CIMA tern

about "A financial and/or o
Q9. Write brieflyeach other. defined
and approved prior to a-
similar with p r e p a r e d

or
Answer:
in
nancial
period, The
non-financial of thhe
policy to be pursued dur
purpose of attaining a given obj
future
period,
expressed

for a
specific main aim,
Budget plan for a allocation achieving organizational object According to G.R Terry.
quantitative resource for accor
is a and guideline quantitative.
Efuture needs arranged act:
periodstfor
atement ,
Udget eypenditure,
or
A income, roadmap and/or
Some or all of
the
p e p a dto estimate a "A
financial
duringthat
Pecovering
is to provide defined as, the of time"
a definite period
budgetar control budget is pursued
Pupoe of terminology, a policy to be P
the
of time, of
CIMA objectives of Budget
Aondingto peiod
pror to a detined The objectives or pur
appOved
the next quarte. as follows.
sales for the Control are
objective.
attaining a given 10,00,000 in
estimating Planning: Plannir
Example asales
budget 1. advance what to d
company
prepares with the budgeted igures to who will do it. Bue
A performance

Budgetary Control of
comparing
actual
evaluation, and
corrective
actions.The for future challeng
process and
control is the involves
monitoring,
efficiency, ensure goals are budgetary contro
Budgetary achieved. It costs,
improve me
goals are is to control planning. For ex
onganizational control
that budgetary
objectiveor purpose of manager anticipa
deviations from the budget. and for next year's o
addressing
actual sales
performance identifies s a iM
Communicatio
Example company tracks
the
preparing
After
a sales budget, organization's a
prompting corrective actions. role in achievi
shortfall. Budgetary Control informed abou
Budget and are as follows,
Differences Between budgetary control
between budget and BudgetaryControl the overall go
differences
The Budget how the proc
activitiee
Basis monitor and control
SNo. estimate for the A process to targets.
Nature A plan or based on the budget.
1. Coordinatio
future. 3.
Focuses on planning.
Focuses on controlling and improving departments
2 Focus performance. example, tt
activities to make more
Conducted during and after
3 Timing Prepared before activities compare actual results. sell, preven
take place. Motivation
Involves setting targets. Involves measuring, analyzing, and 4.
4. Process
correcting deviations. setting cle
in budget
Limited to creating Broader, covering implementation, goals bene
5 Scope
financial plans. monitoring, and corrective actions. motivated

meet prOC
Similarities Between Budget and Budgetary Control S. Control=
are intercontd
Budget and budgetary control are essential for financial management, astheir procedures that thet! perform
with each other. Abudget is atool, while budgetary control is the system or process to ensure
budgete
effectively used to achieve objectives. ensure

1.
Resource Management:Both aim to manage and allocate resources effciently to avoid waste a exampl
organizational goals. measur

2. Performance Measurement:Budgets set performance benchmarks, andl budgetary control evaluates 6. Appra
performance against these benchmarks. the or
3 Decision-Making:Both assist in better bude It gui
control helps make adjustments based ondecision-making. Budgets guide initial decisions,
while
achie
actual outcomes. à ma:
4. Focus on Eficiency:Both focus on increasing organizational efficiency by minim1z1ny COSts andens
and
resources are used optimally.
SIAPUBLISHERS AND Warning:
DISTRIBUTORS PVT. LTD.
 NIT4:Funds Flow Analysis
PART-B : ESSAY 141
CONCEPT OF QUESTIONS AND ANSWERS
FUNDS AND
41 IMPORTANCE AND LIMITATIONS FUND FLOW
STATEMENT-MEANING,
What do you mean by "funds"
09. and "Funds
Answer.: Flow Analysis or Statement
Funds refer to financial resources
Funds
or or money
to the valuemanaging operations.In simplethatwords.
investing.
ensC'S, is available
of for particular purprse such as pay1ng
urment assets andmoney. Usually. funds constitute the funds refer to the
quivalent
the
curent wide variety of resources whch
applications of funds.liabilities of a frm The working capital of a business Le.the d1fference
eween
funds s and
Of funds are divided
gNInTS
are those 'Sources are into two categories such as
transactions which decreasesthose transactions
' a p p l i c a t i o n s "
the net working which increases the net work1ng capital
gnd
various reasons,
Operations: In capital oof an organization Funds can be
funds businesses.
inventory. or cover overhead costs are used to manage
Investment: Individuals or
day-to-day operations. pay saiaries. purchase
Savings and Reserves:
organizations invest funds to grow
Funds can be allocated for future use, wealth or achieve financial goals.
or contingencies. such as retirement
saving. emergency funds.
Special Projects: Governments or
infrastructure, disaster relhef, or research organizations may allocate funds for
specific projects. such as building
Funds Flow Statement/Analysis
Astatement which is prepared
to show the changes in both
pecifed period of time is known as funds filow assets and liabilities of the firm during a
information because balance sheet
statement or analysis. It is usually prepared to analyze the required
and income
tatement of sources and application of funds statement provides only alimited information. It is also called
shows the position / movement of working
knmds flow statement helps the financial analyst capital. Theretore.
to estimate the appropriate financial position
organization. and policies of an
Accordingto Foulke, Funds flow statement is defined as a statement of sources and application of funds
ika technical device designed to analyse the changes in the
[wo dates"
financial condition of a business enterprise hetween
According to Anthony " The funds flow statement describes the sources from which
derived and the use to which these sources were put" additional funds were
AccordingtoL.C.W.A, funds flow statement is defined as "a statement either prospective or
setting out the sources and applications of the funds of an enterprise. The purpose of the statement retrospective,
is to indicate
clearly the requirement of funds how they are proposed to be raised and the efficient utilisation and application of
the same".
n0. Explain the importance and limitations of funds flow statement or analysis.
Answer:
Importance of FundsFlow Statement or Analysis
The importance of funds flow statement or analysis are as follows,
1. Analysis of Financial Operations: Explains changes in assets and liabilities between two oints in tima
and also provides insight into the liquidity and operational efficiency of the business.
Guides Financial Planning: Assists management in planning internediate and long-term financing needs
and also useful in preparing for repayment of debts, business expansion, and resource allocation
Dividend Policy Formation: Helps determine arealistic dividend policy by analyzing the liquidity posibion
despite profits. limited resources to ensure
Allocation of ResOurces: Aids in the optimal util1zation and allocation of
effective financial planning.
Appraisal of Working Capital Use: Evaluates how effectively the firm has managed its working capital
6 and suggests improvements.
Future Guidance: Serves as a tool to forecast future financial needs, highlighting potential liquidity
Funds Flow Statement or Analysis.
shortages or surpluses.Importance of
act. Anyone found
guilty is LIABLE to face LEGAL proceedings.
Warning :XerowPhotocopying of this book is a CRIMINAL
 Sources of Funds
Funds Flow Statement
(ror the 147
indsfrom Operations year
ksue ofShare Capital Amount () ended.. . )
XXX
XXX Appl
Funds lost i
in
cations of Funds
of Debentures Amount ()
SSue
Raising of Long-Terms Loans
XXX
Redemption ofOperat
Capital
ions
Preference Share XXX
Receipts. from partly paid
shares, called XXX Redemption of Debentures XXX
XXX Repayment of
Purchase of long-term loans
XXX
Sale of
Non-current
(Fixed) Assets
XXX Assets Non-current (fixed) XXX
XXX
No-rading receipts such as Purchase of Long-term
Received Dividends Investments
XXX XXX
Saleeof Long-term Investments
Non-trading Payments
Net Decrease in Working Capital XXX XXX
XXX Payments of Dividends
Payment of Tax XXX
Net Increase in XXX
A, Explain the concept of XXX Working Capital XXX
current and
Answer:
non-current accounts. XXX
Any account which is either
a current
whichis neither acurrent asset nor a asset or a
current liability is acurrent liability is called as a current
The concept non curTent account. An account
of
As Aifference Current
between current
and Non-current Account is important account.as
RSsihility of flow of funds. lf assets and current liabilities. If there is a funds implies working capital, which is
there is no change in any change in a current account,
of Current accounts, then there cannot be any then there is a
List of Current or flow of funds.
SNo. Working Capital Accounts
Current Liabilities SNo.
1.
Trade Payables CurrentAssets
1. Cash in hand
(a) Bills Payable
2 Cash at bank
(b) Sundry Creditors or Accounts 3.
Payable Trade Receivables:
2. Accrued or Outstanding Expenses
3 (a) Bills Receivable
Dividends Payable and Unpaid (b) Sundry Debtors or Accounts
Dividend Receivable
4. Bank Overdraft 4. Short-term Loans &Advances
5
Short-term Loans, Advances & 5 Short-term or Marketable Investments
Deposits
6. Inventories or Stocks such as:
Provision against Current assets 6.
Other Current Liabilities (a) Raw Materials
(b) Work-in-process
(c) Stores and Spares
(d) Finished Goods
7. Prepaid Expenses
8. Accrued Incomes
9. Other Current Assets
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 PART-A :SHO
Q1. What is Cash Flow Statement? ecquivaleute

outtlows of
cash and cash linancine
Answer:
Awash tlow statement
intlows und
explains the clussifiedinto
outlows are
operating,
invesling und
NcivIiex
period of time. Such intlows
and on cash apd its
changescquivalnethe cay
transactions
business lead to.
particular period of time.
theippet of
ditlerent
the fictors which
identities to identily
balance sheets.
It is
Cash low
statenent
It is also usedclosing dates of a also
considers the receipts andpayents of cash,
between the
opening and relerred
position of a business
enteprise tinancialanalysis.
method of historical
pOstmortem
exenvise"ora

importance of cash flow statement.

Juno-24,05(
Write the (OR)
Q2.
JunolJuly-22, Q8 (0
importance of cash
flow statement.
Explain the It is mainly used for
Answer: important role in
tinancial
management.

importance or
advantages or utility
of cash foy
shorterm
Cash flow statement plays an analysis. The
tinancial
important tool of basis of
planning and acts as an prepared on cash
statement are as follows, Firm: Cash flow
statement is
obtained from cash
accounting
1. Ascertainment of Cash Position of a position of afirm. The information inflows
and
ascertaining the cash
and it is useful inincreasing the cash equivalents of a firm. flow statement
helps in identification
of
in The cash
outflows helps
Fluctuations in
Performance:
effective measures to avoid '
take
2. ldentification of As such firm can format nrar
failure of a firm's performance. is prepared in a standard
fluctuations and statement
Firms: Cash flow comparisons with other
firms.
Comparisons with Other making
3. Provide used for liquidity position is improving or
which can be effectively whether the firm's
by AS-3 (Revised) Position: In order to identify
prepared for specific period of
tine
Identification offLiquidity
) flow statements are
intra-firm and inter-firm cash
4. repaymen
deteriorating a series of an effective tool which helps in helps in planning the
statement: decisions.
5. Provides Planning: Cash flow also useful in capital budgeting
fixed assets and it is
of loans, replacement of MaylJune-18, Q7 (0U)
Financing Activities.
Q3. Cash from
composition of the owner's
capital (including
Answer:
in the size and
from thechanges enterprise is termed as
financing activities.
Activities which are derived borrowings of the
and to forecat
preference share capital in case
of a company)
arising from financing activities as it helps
flows
separate disclosure of cash
I is necessary to prepare by providers of funds to the enterprise.
claims on future cash flows activities include,
flows arising from financing
Items which come under cash other similar instruments.
Cash receipts from the insurance of shares (or) long-term borrowings.
(a) debentures, loans, notes, bonds and other short (or)
(b) Cash receipts from issue of redemption of debentures, bonds, preference shares.
borrowed like
(c) Cash repayments of amounts
Activities from the following information
Q4. Calculate Cash Flows from Operating
Sales 5,40,000
Purchases 3,40,000
JunelJuly:22,Q8(0U)
Wages 50,000
Advertisement 20,000
Solution :
Activities
Calculation of Cash Flow from Operating
+ Wages +Advertisement)
Cash flow from operating activities = Cash Sales - (Purchases
=5,40,000- (3,40,000 + 50,000 + 20,000)
= 5,40,000- 4,10,000
= 1,30,000
 MANAGEMENT
170 COST

QUESTIONS
CONTROL AND

AND ANSWERS
ACCONTNG
PART-B:ESSAY Forecasting Future Position: Cash
5.
statement is prepared for forecasting
5.1 CASH FLow ANALYSIS cash position of a
concem to help
the
the
OR STATEMENT-MEANING, effectively planning and organizing its in
IMPORTANCE AND operations. financa
LIMITATIONS or Disadvantagessof Cash Flow
Limitations
The limitations or disadvantages of Stcashatemeat
Q7. What is cash flow statement? Explain the statement are as follows. io
importanceladvantages and limitations
Basis for Comparison: Cash fow statemeu
of cash flow statement. 1
is prepared on cash basis of accounting
Answer:
makes the firm to neglect the accrual
Meaning of Cash Flow Analvsis or Statement basis o
accounting.
Acash fiow statement explains the inflows and No Complete Picture: Cash low
complete picture ofstateamen
2.
outflows of cash andcash equivalents during a specihed does not show the
period of time. Such inffows and outflows are classified working capital fim
The firm requires to camy
into operating. investing and financing
activities during
business, but it is neglected in preparation ofts
a particular period of time. cash flow statement.
impact
Cash fiow statement identifies the False Results: The compar1son of cash foe
on cash and its 3.
of different business transactions statement does not give accurate results. D
equivalents and considers the receipts and payments of inaccurate comparison doeS not show the s
cash. It is also used to identify the factors which lead results of a firm.
to changes in the cash position of a business enterprise
between the opening and closing dates of a baiance 4. Complementary Statement: Cash flow statement
sheets. It is also referred as a "postmortem exercise" or does not represent the ncome statement, but i
amethod of historical financial analysis. act as a complementary to it. It showS only cash
of Cash Flow inflows and outflows, but the firm to know it
Importance/Advantages/Utility
profit or loss requires income statement.
Analysis or Statement
Cash fiow statement plays an important role 5. No Replacement: Cash flow statement cannot
be replaced with funds flow statement which
in financial management. It is mainly used for short
financial explains about the reasons of increase or
term planning and acts as an important tool of
analysis. The importance or advantages or utility of decrease in working capital.
cash flow statement are as follows, Not Appropriate: Cash flow statement is not
6.
1 Ascer tainment of Cash Position of a Firm: appropriate in determining the proftability
Cash flow statement is prepared on cash basis of a firm because all the noncash items are
of accounting and it is useful in ascertaining not included while evaluating the cash flows
the cash position of a firm. The information obtained from operating activities.
obtained from cash inflows and outflows helps
in increasing thecash equivalents of a firm. 5.1.1 Norms or Classification
2. Identification of Fluctuations in Performance: for Cash Flow Statement
The cash low statement helps in identification of Created by Accounting
fluctuations and failure of a fims performance.
As such firm can take effective measures to Standard-3 (AS-3)
avoid it.
Q8. Discuss briefly the major classification o
3. Analysation Time: Cash flow statement takes
very less time to analyse the ability of firm to norms of cashflowas perAS-3(Reviseo):
meet its obligations, it is more suitable than Answer
cash
funds flow statement in conducting short-term Cash flows are inflows and outflows of
lows
financial analysis. and cash equivalents. According to AS-3, cash cash
the
4. Information of Activities: Cash flow statement are classified intothree categories to separate liow

reveals allthe information relating to operating, flows earned from these activities. Users of cash onactivities

investing and financing activities of the firm statement can analyze the effect of these both cash
on
whereas, funds flow statement does not reveal financial position of an organization and

information about these activities separately. and cash equivalents.

A SIA PUBLISHERS AND DISTRIBUTORS PVT. LTD.
 mer made in place wing cases, OT gross cash
Example: Collection imstead
of of
receipts and
When the
of rent in placethe firm. customers and where the cash flow denotes the
(b) receipts
maturities are short. or
of
customers
payments for items in and pay ment made to the owners of a
Example: Short-term which the propery-
borrowing turnover is quick. amounts are large and
Financing Activities: which have a
Financing maturity
firm. activities leads to the
funds and borrowings of the of less than or equal to
3 months.
Thus, after
after
classifying operating, changes in the size and composition of shareholder's
extraordinary items. A cash investing and financing
must reveal activities separate disclosure has to be made for
flow statement
balances which are
considered as the
extraordinary
the amount of siggnificant cash or cash equivalent
items held by the firms.
FUNDS FLOW STATEMENT
VS GASH FLOW
Q9. nefine Cash and write the
difference
STATEMENT
statement.
between Funds flow statement and Cash Tio
June-24,Q13(a) (OU)
(OR)
Distinguish between funds flowstatement and cash flow statement.
(Refer only Topic: Diferences Benween Fus Flow Statement and Cash Flow. Statement)
Answer : (JunelJuly-22, Q13(a) (oU) | MarchApril-18, Qno(b)(MGU)
Definition of Cash
banknotes) or balances held in bank accounts tha
Cash refers to money in the form of currency (coins and orders and shor
includes other liquid assets like checks, money
De used immediately for transactions. It also
nvestments that can quickly be converted
into cash.
guilty is LIABLE to face LEGAL proceeding:
CRIMINAL act. Anyone found
hnlng :2Kerox/Photocopying of this book is a
 Dme of the unds Flow Statement and Cash Flow Statement
SNo. differences between funds low and cash flow statements are as follows,
1. Basis Funds Flow Statement Cash Flow Statement
Meaning A statement which shows the changes
Acash flow
statement
made in assets and liabilities of a
firm inflows and
during a specifiedperiod of time is cash equivalents explainsS
outflows of cash he
known as funds flow statement. period of time. during a and
2.
Basis of Concept It is derived from a wider concept of It is derived from
of funds i.e., cash. a narrower
specif eA
funds i.e., working capital concept of
funds.
3. Basis of It is prepared on cash
It is prepared on accrual basis of basis
4.
Accounting accounting. accounting. of
Uses It is useful in
useful in planning intermediate and short-term arnalys1s
long-term financing. cash planning of the
S. Basis of When there is
business anM
When there is an improvement in funds an
improvement position (working capital) it may/may not cash position, it imprOvement
is followed in
improve the cash position of afirm. improvement in the working byan
position of a firm. capital
6. Schedule of It is not
It is necessary to prepare a statement of necessary to prepare a
changes in changes in working capital shows the statement of changes in working
working capital changes in both current assets and current capital.
liabilities.
7. Cash and cash Its statement of changes in working Its statement involves
opening and
equivalents capital involves opening and closing closing balances of cash and cash
balances of cash. equivalents.
8. Method of It is prepared by classifying the funds Itis prepared by arranging all cash
preparing into sources and applications. It implies inflows and outflows. It implies
the increase or decrease in working increase or decrease in cash and ca
capital. equivalent.

9. Term It is a long term analysis. It is a short term analysis.

10. Part of fnancial It is a part of financial statement. It is not apart of financial statement
statement
 AowAnalysis (AS-3)
- C a s h

standard cash flow statement

prepare 173
step is
to which foxuses on net cash
financing activities separately. forw from operatin2
sumof
flow of all the three activities
net cash
must be egual tothe net
guivalents,
computed in next step of cash increase or decreae in casn
flow staterment.
4NPNson cash and equivalents available in comparative
aat
ofc
them. balance sheets is to be made for determining
i
Or decrease in
A T C A E

or decrease is added to the step 5and the

t i n C T e a s e

total of cash beginning of the year must be equal

ì at the end of the year.
cash

the
ATheimportant non-cash transactions which are not involved in cash or cash equivalents are explained

erratelyin aschedule to cash fiow statement, for example redemotion of debentures in exchanges of
sharecapital, purchase of machinery against issue of share capital etc.
.Erplainther emethods ofpreparing cash flowstatement.

preparing cash flow statement are as follows,

The methodss of
Methods of Cash
Flow Statement

Direct MethodIndirect Method

Figure: Methods of Cash Flow Statement

activities are calculated by determining the total

Direct Method: In this method, cash flows from operating 1he
cash payments made into the operating expenses.
cash receipts, obtained from operating revenues and cash payments.
the differences between the cash receipts and
net cash fiow utilized in operating activities is activities are,
and cash payments) derived from operating
The examples of cash flows (cash receipts
commissions and other revenues.
(a) Cash receipts from royalties, fees,
by rendering services.
(b Cash receipts from the sale of goods and
supplies of goods and services.
(C) Cash payment made to the
on behalf of employees.
(dy Cash payment to employees and
relatingtoinsurance company.
(e) Cash receipts and cash payments swaps and options that are
payments of several contracts like futures, forwards,
(f) Cash receipts and
responsible for trading purposes. evaluated by adjusting net
method, the net cash filow from operating activities is
2 Indirect Method: In thís following,
from the changes of
profit or loss i.e., derived unrealized foreign exchange
depreciation, provisions, deferred taxes and
Non-cash items such as
(a)
gains and losses.
accounting period.
inventories, operating receivables
and payables during the
(b Changes
by cash.
which are influenced
(c) All other items are reconciled in indirect method, so it is
cash flow from operating activities
loss and net
The net profitr eorc o n c i l i a t i o n method.
also called as
Standard- 3(AS-3).
fomat of cash flow statement as per Accounting
Q12, Show the
Answer:
Statement as Per Direct Method
Format ofCash Flow is shown below,
method)given by Accounting Standard No-3
The format of cash flow statement (direct
is LIABLE to face LEGAL proceedings.
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