manac(gmp), session 1

7/31/2019 Manac(Gmp), Session 1

1/12

A Brief Introduction to Mechanics &Princi les o Recordin Accountin

Transactions

Prof. Santosh Sangem

XLRI, Finance Area

Management Accounting Sessions 1-2, GMP 2012-13. Prof. Santosh Sangem (XLRI)


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A coherent set of principles for recording transactions of business& non-business entities

Focus on business entities

A business entity is an organization that manages productiveresources to provide products and services to customers with theobjective of earning profit

Sole proprietorship

Partnership

orporat on

Limited Liability Corporation/Partnership



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Provides information to stakeholders

Decision makin b mana ement

Investment decisions of investors Government & regulatory agencies

Customers & roviders of resources

Information relating to financing, investing, & operating activities

of the business entity

Two branches of accounting

Financial Accounting

Managerial Accounting



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A structured representation of the financial position and financial

erformance of an entit (Ind AS 1)

Principles for recording business transactions that affect financialposition

Ensuring comparability over time and across firms

Categorization of business transactions Operating

Investing



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Economic Transactions

Business transactions that affect financial

osition & erformance

Economic TransactionsRecognition



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Basic assumptions/concepts underlying

AccountingGoing

equateDisclosure

n oMeasure Objectivity

HistoricalCost

Prudence Materiality

Matchin



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The most basic of the basic concepts

recorded That is, the entity is viewed as separate from its owners, creditors,

,

Boundaries on transactions to be recorded

Defines the nature of the transaction

Example:

A computer purchased by a sole proprietor and used for both

treated as an asset of the business.

A sale made to a customer cannot be recorded in the books of the


en y as a purc ase ma e y e cus omer.


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The assumption that the entity will continue in business forever

recorded at current market value Examples

te ecom company as een str ppe o a operat ng censes towned on the grounds of fraudulent conduct during the spectrum

auction process. The company has also been barred frompart c pat ng n spectrum auct ons or t e next years.

A company has a large portion of its long-term debt falling due in thenext 3 months. The company is in no position to raise the money

required to repay the debt nor are the lenders willing torefinance/restructure the debt.


bankers leading them to request the court for its liquidation


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Financial statements are to be prepared periodically to help

external stakeholders to continuousl evaluate the financial

position of the entity A typical accounting period is one year

performance.

Disclose reasons if statements prepared for a period different thanone year

Examples:

Durin the late 1 0s man com anies in India resented theirannual accounts for a period of either 9 months or 15 months onaccount of transition to the statutory requirement of presenting

-



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Requires that all relevant information needed by shareholders to

understand the financial statements and to evaluate financialperformance be disclosed

Minimum disclosure requirements specified by the accounting

Central feature of corporate governance standards and regulatory

principles xamp es:

RG garments did not disclose the fact that during the year it wasrequired to pay Rs. 20 crores as penalty for violating the customs

duty and forex laws. A large number of companies in the US have at some time or the


obligations under derivative contracts.


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Entries in accounting records & information presented in financialstatements must be based on ob ective or verifiable evidence

Reduces the chance of fraudulent behavior Necessary to avoid subsequent legal liabilities

xamp es:

At the beginning of the year, ABD Garments Ltd. recorded the

purchase of a second hand delivery vehicle for Rs.25 lakhs fromDBA Garments Co., an entity owned by its managing director. Atthe end of the year, a physical inspection showed that the vehiclewas not in the premises of ABD Garments and that the registration

papers had also not been transferred.


manac(gmp), session 1

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