Fundamentals of Accounting and Financial Analysis (For U.P.T.U.)

408 Pages·2006·4.865 MB·English

by  Anil Chowdhury

Size: 181 x 241mm Spine: 15 mm Col.: 4+0
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FUNDAMENTALS OF ACCOUNTING
AND
FINANCIAL ANALYSIS
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FUNDAMENTALS OF ACCOUNTING
AND
FINANCIAL ANALYSIS
[For the U.P.T.U. Revised New Syllabus]
Anil Chowdhry
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Copyright © 2007 Dorling Kindersley (India) Pvt. Ltd
Licensees of Pearson Education in South Asia
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ISBN 9788131702024
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In
the sacred memory of
my parents,
Dr S. B. Chowdhry and Smt. Krishna Chowdhry
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Contents
Syllabus xi
Road Map xii
Preface xiii
Acknowledgements xv
1. How Accounting Evolved 1
1.1 Introduction 1
1.2 Objectives of Accounting 3
1.3 Accounting Functions 3
1.4 Terms Used in Accounting 5
1.5 Role of Accounting 8
1.6 Evolutionary Characteristics of Accounting 11
1.7 Use of Accounting Information 13
1.8 Conclusion 13
2. Accounting Concepts, Principles and Conventions 17
2.1 Overview 17
2.2 Accounting Concepts 20
2.3 Accounting Conventions and Principles 25
2.4 Accounting Equations 28
3. Accounting Standards: Indian vís-a-vís International 31
3.1 International Accounting Principles and Standards 31
3.2 Financial Accounting Standards Board (FASB) 32
3.3 International Auditing Practices Committee (IAPC) 33
3.4 Differences Between Indian GAAP and U.S. GAAP 33
3.5 International Standards on Auditing 34
3.6 Indian Accounting Standards 35
3.7 Indian Accounting Standards vís-a-vís Corresponding International 38
Accounting Standards
3.8 Accounting Treatment Recommended by Indian Accounting Standards 39
vís-a-vís International Accounting Standards
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viii Contents
4. Foundation of Accounting System 41
4.1 Account 41
4.2 Accountancy 41
4.3 Accounting 42
4.4 Double-Entry System of Accounting 42
4.5 Various Types of Accounts 43
4.6 Golden Rules of Debit and Credit with Reference to the Different 44
Types of Accounts
4.7 Accounting Cycle and Books of Original Entries 45
4.8 Journal 49
5. Fundamentals of Financial Statements 67
5.1 Ledger 67
5.2 Differences Between Journal and Ledger 67
5.3 Relationship Between Journal and Ledger 68
5.4 Rules of Posting 69
5.5 Closing and Balancing of Accounts 70
5.6 Trial Balance 71
5.7 Methods of Preparing the Trial Balance 72
5.8 Rectification of Errors 79
5.9 Classification of Errors 79
5.10 Capital and Revenue 80
5.11 Classification of Capital and Revenue Items 80
5.12 Depreciation 87
5.13 Provisions 93
6. Financial Statements for Corporate Sector and Recent Changes in 97
Accounting Disclosures
6.1 Preparation of Financial Statements 98
6.2 Manufacturing Account 98
6.3 Trading Account 101
6.4 Profit and Loss Account 105
6.5 Balance Sheet 109
6.6 Important Provisions of the Companies Act, 1956, 123
in Respect of the Preparation of Final Accounts
6.7 SEBI’s (Securities and Exchange Board of India) Guidelines 128
Regarding Issue of Bonus Shares
6.8 Buy-Back of Shares 128
6.9 Sweat Equity Shares 129
6.10 Final Accounts Under the Companies Act, 1956 129
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Contents ix
6.11 Accounting for Inflation 174
6.12 Accounting for Human Resources in an Organisation 176
7. Analysis of Financial Statements 195
7.1 Introduction 195
7.2 Ratio Analysis 197
7.3 Solvency Ratios 203
7.4 Profitability Ratios and Activity Ratios 205
7.5 Liquidity Ratios 212
7.6 Proprietary Ratios 215
7.7 Internal and External Analysis 217
8. Financial Statements for Insurance and Banking Sector 239
8.1 Common Size Statement 239
8.2 Comparative Balance Sheet 242
8.3 Trend Analysis 242
8.4 Balance Sheet of the Insurance Companies Under 243
Respective Statutes of IRDA
8.5 Banking Companies’ Accounts 260
9. Concept, Construction and Analysis of Funds Flow Statement 283
9.1 Funds Flow Statement 283
9.2 Importance of Funds Flow Statement 293
9.3 Preparation of Funds Flow Statement 294
9.4 Analysis of Funds Flow Statement 297
9.5 Concept of Gross and Net Working Capital 298
9.6 Working Capital Cycle vís-a-vís Operating Cycle 301
9.7 Limitations of Funds Flow Statement 301
10. Cash Flow Statement: Importance and Application 311
10.1 Cash Flow Statement 311
10.2 Various Terms Defined in the Accounting Standards (AS-3) 311
10.3 Various Cash and Non-Cash Transactions 312
10.4 Recommended Proforma of Cash Flow Statements (Under AS-3 Revised) 315
10.5 Cash Flow Analysis vs Funds Flow Analysis 321
11. Case Studies 327
Case 1 Ram Luxman and Sons (RLS) 327
Case 2 Vimal Textile Machinery Company (VTMC) 328
Case 3 Wave Multiplex Commercial Complex (WMCC) 330
Case 4 Star Semiconductor Corporation Limited (SSCL) 330