Cost & Management Accounting And Financial Managment

2016 BUS SYLLA

INTERMEDIATE : PAPER - 10

COST & MANAGEMENT ACCOUNTING AND FINANCIAL MANAGMENT INTERMEDIATE
STUDY NOTES

The Institute of Cost Accountants of India CMA Bhawan, 12, Sudder Street, Kolkata - 700 016

First Edition: August 2016 Reprint: September 2017 Reprint: January 2018 Reprint: June 2018 Reprint: January 2019 Edition: August 2019 Edition: October 2019 Reprint: August 2020 Reprint: October 2020 Reprint : January 2021 Reprint : March 2021
Published by : Directorate of Studies The Institute of Cost Accountants of India (ICAI) CMA Bhawan, 12, Sudder Street, Kolkata - 700 016
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Copyright of these Study Notes is reserved by the Institute of Cost Accountants of India and prior permission from the Institute is necessary
for reproduction of the whole or any part thereof.

Syllabus - 2016
PAPER 10: COST & MANAGEMENT ACCOUNTING AND FINANCIAL MANAGEMENT (CMFM)

Syllabus Structure The syllabus comprises the following topics and study weightage:

A Cost & Management Accounting

50%

B Financial Management

50%

A

B

50%

50%

ASSESSMENT STRATEGY There will be examination of three hours.

OBJECTIVE

To provide an in depth knowledge of the detailed procedures and documentation involved in cost ascertainment systems. To understand the concepts of Financial Management and its application for managerial decision making.

Learning Aims

The syllabus aims to test the student’s ability to:  U  nderstand the cost and management accounting techniques for evaluation, analysis and application in
managerial decision making;  Compare and contrast marginal and absorption costing methods in respect of profit reporting;  A  pply marginal and absorption costing approaches in job, batch and process environments;  Prepare and interpret budgets and standard costs and variance statements;  I dentify and apply the concepts of Financial Management

Skill Set required

Level B: Requiring the skill levels of knowledge, comprehension, application and analysis.

Note: Subjects related to applicable statutes shall be read with amendments made from time to time.

Section A : Cost & Management Accounting

50%

1. Cost and Management Accounting - Introduction

2. Decision Making Tools

3. Budgeting and Budgetary Control

4. S tandard Costing and Variance Analysis

5. L earning Curve

Section B : Financial Management

50%

6. I ntroduction to Financial Management

7. T ools for Financial Analysis and Planning

8. Working Capital Management

9. Cost of Capital, Capital Structure Theories, Dividend Decisions and Leverage Analysis

10. Capital Budgeting - Investment Decisions

SECTION A: COST & MANAGEMENT ACCOUNTING [50 MARKS] 1. Cost and Management Accounting:
Introduction to Management Accounting - Relationship between Management Accounting and Cost Accounting 2. Decision Making Tools: (a) Marginal Costing: Break Even Analysis and Cost - volume - profit analysis; break-even charts and profit
charts; differential cost analysis; stock valuation under marginal costing vs. absorption costing; applications of marginal costing in decision making. (b) Transfer Pricing - Determination of Inter-departmental or Inter-company Transfer Price 3. Budgeting and Budgetary Control: (a) Budgetary Control and Preparation of Functional and Master Budgeting. (b) Fixed, Variable, Semi-Variable Budgets (c) Zero Based Budgeting (ZBB) 4. Standard Costing & Variance Analysis: Computation of variances for each of the elements of costs, Sales Variances, Investigation of variances Valuation of Stock under Standard Costing - Uniform Costing and inter-firm comparison. 5. Learning Curve: Concept of Learning curve and its application.
SECTION B: FINANCIAL MANAGEMENT [50 MARKS] 6. Introduction to Financial Management:
Meaning - Objectives - Scope of Financial Management sources of Finance - Introduction to Financial Markets. 7. Tools for Financial Analysis and Planning:
Financial Ratio Analysis - Fund Flow Analysis - Cash Flow Analysis. 8. Wroking Capital Management
Working Capital Management - Financing of Working Capital 9. Cost of Capital, Capital Structure Theories, Dividend Decisions and Leverage Analysis
Meaning of Cost of Capital - Computation of Cost of Capital - Capital Structure Theories and Dividend Decisions Theories (Walters - MM - Gordon Models) - Leverage Analysis 10. Capital Budgeting - Investment Decisions: Concept of Capital Budgeting - Non-Discounted and Discounted Cash Flow Method - Ranking of Projects.

Contents
SECTION A - COST & MANAGEMENT ACCOUNTING

Study Note 1 : Cost and Management Accounting – Introduction

1.1

Introduction

1

1.2

Management Accounting - Definition

2

1.3

Objectives of Management Accounting

3

1.4

Role of Management Accounting in Management Process

3

1.5

Functions of Management Accounting

4

1.6

Significance of Management Accounting

6

1.7

Limitations of Management Accounting

6

1.8

Relationship between Management Accounting and Cost Accounting

7

Study Note 2 : Decision Making Tools

2.1

Marginal Costing

11

2.2

Determination of Cost and Profit under Marginal Costing

14

2.3

Realities about Marginal Costing

15

2.4

Techniques of Marginal Costing

15

2.5

Differential Cost Analysis

27

2.6

Differences between Absorption Costing and Marginal Costing

29

2.7

Application of Marginal Costing in Decision Making

29

2.8

Transfer Pricing

41

2.9

Objectives of Inter Company Transfer Pricing

42

2.10

Methods of Transfer Pricing

42

Study Note 3 : Budgeting and Budgetary Control

3.1

Budgetary Control and Preparation of Functional and Master Budgeting

103

3.2

Fixed, Variable, Semi-variable Budgets

110

3.3

Zero Based Budgeting (ZBB)

112

Study Note 4 : Standard Costing and Variance Analysis

4.1

Introduction

135

4.2

Computation of Variances for each of the Elements of Costs, Sales Variances

138

4.3

Investigation of Variances & Reporting of Variances

152

4.4

Valuation of Stock under Standard Costing

154

4.5

Uniform Costing and Inter-firm Comparison

155

Study Note 5 : Learning Curve

5.1

Introduction

193

5.2

Phases in Learning Curve

193

5.3

Uses of Learning Curve

195

5.4

Limitations of the usefulness of the Learning Curve

196

5.5

Factors affecting Learning Curve

196

5.6

The Experience Curve

197

5.7

Reasons for use of Learning Curve

198

5.8

Application of Learning Curve

199

SECTION B - FINANCIAL MANAGEMENT

Study Note 6 : Introduction to Financial Management

6.1

Meaning

205

6.2

Objectives

206

6.3

Scope of Financial Management

207

6.4

Sources of Finance

214

6.5

Introduction to Financial Markets

228

Study Note 7 : Tools for Financial Analysis and Planning

7.1

Financial Ratio Analysis

245

7.2

Fund Flow Analysis

272

7.3

Cash Flow Analysis

275

Study Note 8 : Working Capital Management

8.1

Working Capital Management - Financing of Working Capital

313

8.2

Inventory Management

336

8.3

Management of Receivables

337

8.4

Determinant of Credit Policy

339

8.5

Evaluation of Credit Policy

341

8.6

Cash Management

352

Study Note 9 : Cost of Capital, Capital Structure Theories, Dividend Decisions and Leverage Analysis

9.1

Meaning of Cost of Capital – Computation of Cost of Capital

367

9.2

Capital Structure Theories

397

9.3

Dividend Policy

419

9.4

Leverage Analysis

439

9.5

EBIT - EPS Indifference Point/Level

441

Study Note 10 : Capital Budgeting - Investment Decision

10.1

Capital Budgeting

465

10.2

Need of Capital Budgeting Decision

466

10.3

Significance of Capital Budgeting Decisions

466

10.4

Process of Capital Budgeting

467

10.5

Control for Capital Expenditure

468

10.6

Investment Criterion - Methods of Appraisal

468

Section A Cost & Management Accounting
(Syllabus - 2016)