GAGE UNIVERSITY COLLEGE

Department Of Business Administration Financial and Managerial

Accounting Group Assignment

Name ID

1.BEZAWIT HABTAMU------------------------------------0610/15

2.FEREHIWOTR SHIFERAWU----------------------------0624/15

3.GETINET GULTU------------------------------------------0631/15

4.HAILU TARIKU------------------------------------------2401/15

5.KIDIST BEKELE--------------------------------------------0562/15

6.MULLUNESH FIKADU-----------------------------------0621/15

7.WOINESHET BENTI--------------------------------------06/5/15

8.YOSEF ANMAWU-----------------------------------------06/11/15

9.ZELALEM H/MARIYAM----------------------------------6/6/15

Submitted to:-Dr. Keno T.(PhD)

Addis Ababa, Ethiopia March, 2023

 UNIT ONE
MANAGEMENT ACCOUNTING:
1.1 Introduction
Management accounting can be viewed as Management-oriented Accounting. Basically it is
the study of managerial aspect of financial accounting, "accounting in relation to
management function". It shows how the accounting function can be re-oriented so as to fit it
within the framework of management activity. The primary task of management accounting
is, therefore, to redesign the entire accounting system so that it may serve the operational
needs of the firm. If furnishes definite accounting information, past, present or future, which
may be used as a basis for management action. The financial data are so devised and
systematically development that they become a unique tool for management decision

1.2 Definition of Management Accounting

The Institute of cost and Management Accountants, London, has defined Management

Accounting as, "the application of professional knowledge and skill in the preparation of

accounting information in such a way as to assist management in the formulation of policies

and in planning and control of the operation of the undertaking."According to R.N Anthony,
" Management Accounting is concerned with accounting information that is useful to
management.

1.3 Objectives of Management Accounting

The objectives of management accounting are as follows:

(i) To present financial information to the management in a way that is easily understandable

(ii) To supply necessary data to the management for formulating future plans

(iii) To help in keeping the actual performance as per the plans made by the management.

(iv) To establish a strong, working relationship amongst different individuals pertaining to

different departments, of the same organization.

(v) To maximize the wealth of the organizationMgt accountingSN Page 2

(Vi) To motivate the employees, by fixing targets and providing incentives“

(Vii) To keep the tax burden of the organization minimum

(viii) To keep the management fully informed about the latest position of the organisation
 1.4 Nature of Management Accounting
(i) Mainly concerned with future : Planning is the process of looking ahead by taking the

reference of the past.

(ii) Recent origin: Management accounting has been well recognized in the modern business
houses due to increasing customer base and market complexity.

(iii) Management need oriented: Management Accounting is highly personalized service and
Subjective in nature.

(iv) Information as per Management need: There is no hard and fast rule in the preparation of
management reports and statement.

(v) Provides data and not the decisions: Management accounting discipline is not an

replacement of management.

(vi) Objective oriented: Management accounting present data in such a way that it enables
the management to formulate policies and programme so as to achieve the managerial.

(vi) Financial and cost accounting information: Management accounting is all about the
analysis Mgt accounting and interpretation of financial and cost accounting data,

(vii) Increases efficiency: Management accounting is concerned with providing, the needed
information to the Management in the proper manner and assisting in the policy formulation
and managerial control

The important tools and techniques are briefly explained below.

1.5 Limitations of Management Accounting

1. Data Dependency;-Management accounting derives information from Financial
accounting, Cost accounting and other sources.

2.Does not give the decision:-Management accounting cannot replace the decisions.

3. Costly affair:-Installation and maintenance of Management accounting system is suitable

for those concerns which has significant amount of transactions generally large
establishments.

4. No standardization as other disciplines:-Management accounting is still in the development

stage.

5. Danger of misleading:-The information Provided by Management accountants cannot be

taken as full proof information for making any managerial decisions.
 UNIT TWO
FINANCIAL STATEMENT ANALYSIS
2.1 Introduction
Financial statements are an important source of information for evaluating the performance
and prospects of a firm. Financial statement analysis may be done for a variety of purposes,
which may range from a simple analysis of the short-term liquidity position of the firm to a
comprehensive assessment of the strengths and weaknesses of the firm in various areas.

2.2 Definition of Financial Statement

Financial statements are the essential documents of business. They are the outputs of
financial accounting. They are the final products of the accounting process. The basic
purpose of preparing financial statements is to convey information about financial position of
the enterprise to owners, creditors and the investors.

2.3 Objectives of Financial Statements

Financial statements serve as a horoscope of a business. This is so because they enable
readers to measure financial position of a concern. The other objectives are summarized
below:

1 To provide information about assets and liabilities of a firm.

2 To provide useful information to various parties interested in financial statements

3 To present true and fair view of the business.

4. To estimate the earning capacity of the enterprise.

5 To determine the debt capacity of the concern.

6. To decide about the future prospects of the business.

2.4 Nature of Financial Statement

The following characteristics of financial statements indicate their nature:

1. Recorded Facts:-The term recorded facts refers to the data drawn from accounting records.

2. Accounting Principles:-In the preparation of financial statements, certain accounting

principles, concepts and conventions are followed.

3. Assumptions:-Business transactions are recorded on certain assumptions.

4. Personal Judgment:-The financial statements are affected by the personal judgment of

accountants. For example: The method of stock valuation, method of depreciation etc.
  The financial statements should possess the following essential qualities:

1. Understandability 2. Relevance 3. Reliability and Accuracy

4.Comparability 5.completeness 6.Timeliness

 Types of Analysis and Interpretation of Financial Statements

Financial Statements can be analyzed by using the any one of the following method.

1. Comparative financial statement analysis. 2. Common-size statement analysis.

3. Trend analysis 4. Ratio analysis. 5. Fund flow analysis. 6. Cash flow analysis.

UNIT THREE
RATIO ANALYSIS
3 .1 Introduction
Ratio analysis is a useful management tool that will improve yourunderstanding of financial
results and trends over time, and provide key indicators oforganizational performance.

3.2 Definition of ratio analysis

Ratio analysis is one of the important technique of financial analysis where ratios are used as
a yard stick for evaluating the financial condition and performance of a firm.

According to accountants hand book by Winson Kenn and Bed Ford “A ratio is an expression
of the quantitative relationship between two numbers”

3.3 Advantages of ratios analysis

1. It simplifies the financial statement.

2. It facilitates inter firm comparison.

3. It helps in planning.

4. It makes intra firm comparison possible.

5. The ratios can assist the management in its basic functions of planning, forecasting,
3.4 Limitations of ratios analysis
1. Ratios are based on many assumptions and hence these may mislead the decision

makers.
2. Ratios are meaningful only when they are studied with other ratios. A ratio alone cannot be
meaningless by itself.

3. Understanding of ratios needs professional knowledge. Hence, it cannot be used by

common people.

4. Ratios alone are not adequate for judging the financial position of a business.

5. Ratios will not give decisions: It is just information to make effective decisions.

6. There is no standardization in ratios.

7. Does not reflect the qualitative aspects.

8. It is based on financial statements

UNIT FOUR
Cash Flow Statement
4.1 Introduction
A cash flow statement is a statement which shows the change in cash position from one
period to other. This statement helps in short term financial planning.

4.2 Definition of Cash Flow Statement

In the cash flow statement the term fund is used to mean cash only and does not include even
most liquid current assets. A cash flow statement shows the impact of transactions on cash
position of the firm and includes all transactions having a direct impact upon cash.

 Cash:-Cash comprises cash on hand and demand deposits with banks.

 Cash equivalents:-There are short term, highly liquid investments which can be
readily converted into cash without a decline in their value.
 Cash flows:-Cash flows are inflows and outflows of cash and cash equivalents. When
there is a change in any transaction, there will be flow of cash. If the effect of
transaction results in increase of cash and its equivalents, it is called an inflow. If it
results in decrease of cash, it is called outflow.

4.3 Objectives of cash flow statement

1. Useful in cash planning:- It is very useful to management by providing a basis to evaluate
ability of a company to generate cash.

2. Assess cash flow from operating activities:- It provides information about cash

generated from operating activities.

3. Payment of dividends:- Decisions to pay dividends cannot be based on net profit only.

4. Cash from investing and financing activities:- It provides information not only about

cash provides by operating activities but also by non-operating activities under two

heads, namely investing activities and financing activities.

5. Explain reasons for shortage or surplus of cash:- A business may have made profit and yet
running short of cash. Similarly a business may have suffered a loss and still has sufficient
cash at bank.

4.4 Advantage of Cash Flow Statement

1. Planning and co-ordination of financial operations

2. A control device

3. Useful to internal financial management

4. Profit and cash position

5. Short term finance position

4.5 Limitations of Cash Flow Statement

1. As the enterprise shifts form strictly cash basis, enters into credit transactions as well

takes into account prepared and accrued items, the net income no doubt would generally
represent an increase in working capital, yet equating net income to cash flow

for such enterprise would be inaccurate and misleading since a number of non-cash

items affect the net income of the firm.

2. The cash balance too easily influenced by postponing purchase and other payment.

 Classification of cash flow

Cash flow from operating activities

Cash flow from investing activities

Cash flow from financing activitie

 UNIT FIVE
Budget and Budgetary Control
5.1 Introduction
A budget is an accounting plan. It is a formal plan of action expressed in monetary

terms. It could be seen as a statement of expected income and expenses under certain

anticipated operating conditions. It is a quantified plan for future activities quantitative blue
print for action.. Budgeting is a management device used for short‐term

planning and control. It is not just accounting exercise.

5.2 Definition of Budget

Budget:-is a plan quantified in monetary terms prepared and approved prior to a defined
period of time, usually showing planned income to be generated and, expenditure to be
incurred during the period and the capital to be employed to attain a given objective.

Budgetary Control :-Budgetary control is the establishment of budgets relating to the

responsibilities of executives of a policy and the continuous comparison of the actual with the
budgeted results, either to secure by individual action, the objective of the policy or to
provide a basis for its revision.

5.3 Objectives of Budgetary Control

The objectives of budgeting may be summarized as follows:

1. Planning: Planning has been defined as the design of a desired future position for an

entity and it rests on the belief that the future position can be attained by uninterrupted

management action.

2. Co‐ordination:- Budgeting plays a significant role in establishing and maintaining

coordination.

3. Measurement of Success: Budgets present a useful means of informing managers how

well they are performing in meeting targets they have previously helped to set

4. Motivation: Budget is always considered a useful tool for encouraging managers to

complete things in line with the business objectives

5. Communication: A budget serves as a means of communicating information within a firm.

5.4Advantages of Budgetary control.
These are the advantages of budgetary control. But this tool offer many other advantages as
follows:

1. This system provides basic policies for initiatives.

2. It enables the management to perform business in the most professional

manner because budgets are prepared to get the optimum use of resources and

the objectives framed.

3. It ensures team work and thus encourages the spirit of support and mutual

understanding among the staff.

4. It increases production efficiency, eliminates waste and controls the costs.

5. It shows to the management where action is needed to remedy a position.

6. Budgeting also aids in obtaining bank credit.

7. It reviews the present situation and pinpoints the changes which are necessary.

5.5 Limitations of Budgetary control

1. It tends to bring about rigidity in operation, which is harmful.

2. It being expensive is beyond the capacity of small undertakings.

3. Budgeting cannot take the position of management but it is only an instrument

of management.

4. It sometimes leads to produce conflicts among the managers as each of them

tries to take credit to achieve the budget targets.

5. Simple preparation of budget will not ensure its proper implementation.

5.6 Classification of Budget

The Three Types of Budgets

1.Balanced Budget:- A budget is deemed a balanced one if the expected government

expenses equal the estimated government receipts during a given financial year. ...

2.Surplus Budget:-The second of the three types of budgets are the surplus budget. ...

3.Deficit Budget:- A budget deficit occurs when expenses exceed revenue

Summary
. The development of brand valuation method and accounting framework are very

important in this regard. Not much headway, however, has been made in the sphere

of accounting for brands. Enervated by the benefits of brand value, many firms in the

West saw the sage of mega-mergers and acquisitions in the late eighties.

The brands are to be explicitly recognized, as part of purchased Goodwill, by the

ICAI of India, which would make possible the recognition of brand values. Rules and

methodologies necessary for the valuation accounting and disclosure of brands may

be framed in this regard. This would go a long way in governing the brand

accounting practice and contribute to healthy business combinations in India,

especially where the brand values are given serious consideration in the emerging

strategic alliances, mergers and acquisitions fueled by the entry of MNCs. This

assumes special significance in the environment of globalization, liberalization and

privatization of Indian economy.It emerges from the above discussions that Goodwill, brand
valuation andaccounting are definite to take the world of accounting by storm in the near
future which would mark the beginning of a new era of accounting practice. Thus, there

exists a strong and a clear case for brand accounting, especially in view of the imminent
benefits of brand accounting to the corporate bodies and the investors alike.

Reference
1. Kotler Philip, Armstrong Gary, Principles of Marketing, Printice-Hall of India (Pvt.)

Ltd.

2. ASB, Goodwill and Intangible Asset, U.K.

3. Pyne Radhanath, Valuing brands, The Accounting Debate, The Chartered Accountant.

4. Datta Manipadma, Brand Equity : A paradigm shift in firm valuation, Chartered

Secretary.