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Questions and Answers

What is the main objective of management accounting?

The main objective of management accounting is to assist management in decision making and control.

Management accounting is purely voluntary and its use depends on its utility to the management.

True

Which of the following is NOT a function of Management Accounting?

  • Planning
  • Auditing (correct)
  • Communication
  • Controlling
  • Coordinating

    • What is NOT true about financial accounting?

    <p>Financial accounting is used for internal decision making.</p> Signup and view all the answers

    Which of the following is a tool or technique of management accounting?

    <p>All of the above</p> Signup and view all the answers

    What is the primary purpose of financial statement analysis?

    <p>Financial statement analysis evaluates a company's performance or value through its financial statements.</p> Signup and view all the answers

    Financial statement analysis is only concerned with a company's financial performance.

    <p>False</p> Signup and view all the answers

    Which of the following is NOT a type of Financial Statement?

    <p>Statement of Working Capital</p> Signup and view all the answers

    What is the main purpose of a comparative balance sheet?

    <p>The main purpose is to compare financial information from different periods to identify trends and changes.</p> Signup and view all the answers

    What is the primary tool used in Common-Size Statements?

    <p>Vertical Analysis</p> Signup and view all the answers

    What is the main purpose of Trend Analysis?

    <p>To identify and interpret whether the figures of a business are increasing, decreasing, or remaining constant over time.</p> Signup and view all the answers

    What is NOT an advantage of ratio analysis?

    <p>Ratio analysis provides a clear picture of a company's future performance.</p> Signup and view all the answers

    Ratio analysis is always an objective and accurate measure of a company's financial health.

    <p>False</p> Signup and view all the answers

    Which of the following is a major classification of accounting ratios?

    <p>All of the above</p> Signup and view all the answers

    What are ‘Liquidity Ratios’ used for?

    <p>Liquidity Ratios measure a company's ability to meet its short-term obligations.</p> Signup and view all the answers

    The ideal current ratio is 2:1, meaning current assets should be twice the amount of current liabilities.

    <p>True</p> Signup and view all the answers

    What does the Quick Ratio (or Acid Test Ratio) measure?

    <p>The quick ratio measures a company’s ability to meet its immediate financial commitments.</p> Signup and view all the answers

    What are Turnover Ratios used to assess?

    <p>Turnover Ratios measure a company's efficiency in utilizing its assets to generate sales.</p> Signup and view all the answers

    What does the Stock Turnover Ratio indicate?

    <p>The efficiency of a company’s inventory management.</p> Signup and view all the answers

    A high stock turnover ratio is generally considered to be a sign of efficient inventory management.

    <p>True</p> Signup and view all the answers

    What is the purpose of the Debtors Turnover Ratio?

    <p>The debtors turnover ratio measures how quickly a company collects payments from its customers.</p> Signup and view all the answers

    Which of the following is NOT a defining factor of working capital?

    <p>Level of competition in the industry</p> Signup and view all the answers

    Working capital is essential for every business.

    <p>True</p> Signup and view all the answers

    What is the primary purpose of *Gross Working Capital'?

    <p>The primary purpose of gross working capital is to include all of the current assets a firm possesses.</p> Signup and view all the answers

    Net working capital is the difference between total current assets and current liabilities.

    <p>True</p> Signup and view all the answers

    What is Variable Working Capital?

    <p>Variable working capital represents the amount of working capital that fluctuates based on the changing needs of the business.</p> Signup and view all the answers

    What is the primary function of the Operating Cycle?

    <p>The operating cycle shows the flow of cash within a business, starting with payments for raw materials and ending with receiving cash from sales.</p> Signup and view all the answers

    What are Solvency Ratios used to determine?

    <p>Solvency ratios are used to measure a company's ability to meet its long-term financial obligations, such as debt payments.</p> Signup and view all the answers

    The ideal Debt-Equity Ratio is 1:1.

    <p>True</p> Signup and view all the answers

    What is the Proprietary Ratio?

    <p>The proprietary ratio measures the proportion of a company's assets owned by its shareholders, providing a gauge of the company's financial stability.</p> Signup and view all the answers

    What does the Debt Service Ratio (or Interest Coverage Ratio) evaluate?

    <p>The debt service ratio evaluates a company's ability to meet its interest payments on its long-term debt obligations.</p> Signup and view all the answers

    What is the Return on Investment (ROI) ratio used to measure?

    <p>A company's profitability in relation to its total assets.</p> Signup and view all the answers

    A high Return on Investment (ROI) ratio indicates that a company is efficiently utilizing its assets to generate profits.

    <p>True</p> Signup and view all the answers

    What is the difference between Gross Capital Employed and Net Capital Employed?

    <p>Gross capital employed includes all assets, while net capital employed subtracts current liabilities from total assets.</p> Signup and view all the answers

    Which ratio is used to measure a company’s ability to cover its operating expenses?

    <p>Operating Ratio</p> Signup and view all the answers

    A Net Profit Ratio of 20% means that for every Rs. 100 of sales, a company earns Rs. 20 in profit.

    <p>True</p> Signup and view all the answers

    What is the purpose of Working Capital Management?

    <p>To ensure that a firm has enough liquid funds to meet its current obligations and to finance its day-to-day operations smoothly.</p> Signup and view all the answers

    A company’s working capital requirements can be calculated by simply subtracting current liabilities from total current assets.

    <p>False</p> Signup and view all the answers

    What is Earning Per Share (EPS)?

    <p>Earning per share (EPS) shows the net profit available for each share of the company’s equity after all taxes and preferred dividends have been paid.</p> Signup and view all the answers

    A Dividend Payout Ratio of 50% means that a company is paying 50% of its net profit after taxes to its shareholders as dividends.

    <p>True</p> Signup and view all the answers

    What does the Dividend Yield Ratio show?

    <p>The return on a company's investment as a percentage of the market price of its shares.</p> Signup and view all the answers

    The Price Earning Ratio (P/E) ratio indicates the market price of a company's share in relation to its earnings per share.

    <p>True</p> Signup and view all the answers

    Which of the following is NOT a direct component of the Operating Cycle?

    <p>Credit Period Allowed by Suppliers</p> Signup and view all the answers

    What is the primary reason for doing Trend Analysis?

    <p>Trend analysis helps businesses identify long-term patterns and trends in their financial performance.</p> Signup and view all the answers

    A low quick ratio is always an alarm bell for a company.

    <p>False</p> Signup and view all the answers

    A high debt service ratio indicates a company is making risky financial decisions.

    <p>False</p> Signup and view all the answers

    What is the primary goal of Working Capital Management?

    <p>To ensure that a company has enough liquid funds to meet its current obligations and to finance its day-to-day operations smoothly.</p> Signup and view all the answers

    Study Notes

    Shivaji University, Kolhapur

    • Advanced Accountancy Paper-II (Management Accounting)
    • For M. Com. Part-I, Semester-I
    • In accordance with National Education Policy 2020
    • Implemented from the Academic Year 2023-24

    Advisory Committee Members

    • Prof. (Dr.) D. T. Shirke (Hon'ble Vice Chancellor, Shivaji University, Kolhapur)
    • Prof. (Dr.) P. S. Patil (Hon'ble Pro-Vice Chancellor, Shivaji University, Kolhapur)
    • Prof. (Dr.) Prakash Pawar (Department of Political Science, Shivaji University, Kolhapur)
    • Prof. (Dr.) S. Vidyashankar (Hon'ble Vice-Chancellor, KSOU, Mukthagangotri)
    • Additional listed faculty from various departments at Shivaji University, Kolhapur

    Writing Team Members

    • Dr. V. K. Sawant (Dhananjayrao Gadgil College of Commerce, Satara)
    • Dr. P. N. Devali (M.B.A. Unit, Shivaji University, Kolhapur)
    • Dr. D. R. Bhutiyani (L.B.S. College, Satara)
    • Dr. P. V. Mohite (Arts & Commerce College, Ashta)
    • Dr. N. S. Pandit (S. G. M. College, Karad)
    • Additional Authors from Shivaji University, Kolhapur, listed on pages 6 & 7

    Course Outline - Semester I

    • Unit 1: Introduction to Management Accounting
    • Unit 2: Analysis of Financial Statements Part-I
    • Unit 3: Analysis of Financial Statements Part-II
    • Unit 4: Working Capital

    Page Numbers and Subject Matter

    • Page 1: Title page of the course
    • Page 2: Copyright information
    • Pages 3 & 4: Advisory Committee Members
    • Pages 5, 9-12: Unit 1: Introduction to Management Accounting (includes objectives, meaning, scope, functions, role of manager in decision making, tools & techniques, summary, examples, suggested readings)
    • Page 13: Unit 1: (continued), additional areas relevant to management accounting
    • Page 14: Unit 1: (continued) meaning of management accounting, roles of accounting in decision making, important discussions on subject matter, etc.
    • Page 15: Important discussion points regarding management accounting
    • Pages 16, 17: Management Accounting Versus Financial Accounting
    • Page 17: Comparison of Management Accounting vs. Financial Accounting (meaning, object, entity, accounting method, nature of data, description, precision).
    • Page 18: (continued) Comparison of Management Accounting vs. Financial Accounting
    • Page 19: Methodology and Principles, specific aspects, Reporting, Quickness.
    • Page 20: Preface - includes details about the course
    • Pages 21-24: Tools & Techniques/Functions of Management Accounting: Overview of Financial statement analysis, forecasting and budgeting, statistical tools, operational research, financial analysis, etc.
    • Pages 25-27: Topic Details
    • Pages 28-32: Unit 2, Analysis of Financial Statements Part-I (introduction, presentation of subject matter, meaning and types of financial statements, comparative statements analysis, common size statement, analysis, summary, terms to remember, exercise, reference for further study)
    • Page 32-33: Unit 2, (continued) various forms of financial statements
    • Pages 34-35: Unit 2 (continued) and references for further study
    • Page 36-End: Unit 2 onwards and 3, with specific content and details as mentioned for each section and sub section

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