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PROGRAM BCA - SEMESTER - 4

SUBJECT CODE & NAME - BCA 4040 - PRINCIPLES OF


FINANCIAL ACCOUNTING AND MANAGEMENT
1. What are the elements of financial statements?
Explain, in brief, the recognition criteria of
elements of financial statements.
Elements of Financial Statements
Financial statements are the end products of the accounting process. Financial
statements are prepared and presented for external users. The scope of financial
statements is different in different countries. In India, the term
Financial
Statements consists of Balance Sheet, Profit and Loss Account and the
Schedules and Notes forming part thereof. The Conceptual Framework developed
by the International Accounting Standards Committee (IASC) defines the
objective of financial statements as to provide information about the financial
position, performance and changes in financial position of an enterprise that is
useful to a wide range of users in making economic decisions.

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2. What is rectification of errors? List and explain


the stages where the errors are deducted for
rectification.
Rectification of errors :
In financial accounting, every single event occurring in monetary terms is
recorded. Sometimes, it just sohappens that some events are either not
recorded or it is recorded in the wrong head of account or wrongfigure is
recorded in the correct head of account.Whatever the reason may be, there
is always a chance of error in the books of accounts. These errors
inaccounting require rectification. The procedure adopted to rectify errors in
financial accounting is called"Rectification of error"
Rectification of errors depends on the stage at which the errors are
detected. There are mainly two stages in the accounting process
when errors can be detected:

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3.
What are
management?

the

objectives

of

financial

Objectives of Financial Management


The firms investment rationale and financing decisions are continuous. It is
generally agreed that the financial goal of the firm should be the
maximization of the owners economic welfare. The owners economic welfare
can be maximized by maximizing the shareholders wealth as reflected in the
market value of shares. Profit maximization and wealth maximization are two
important aspects.
1. Profit Maximization
Profit maximization means increasing the rupee income of firms. Pricing of goods is
a very important function and is determined by the type of economy in which the
firm is functioning. This may be

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4. What is inventory management and explain the


following:
a. Economic Order Quantity
b. Reorder Point
Inventory Management
The term inventory refers to the stockpile of products. Inventory comprises
of those assets which will be sold off in the near future and moneys
recovered. Inventory consists of three types of assets raw materials, semi
-finished goods (work in progress) and finished goods. Raw material
inventory consists of those items which are purchased by the firm to
be converted into finished goods. Work in progress inventory consists
of partially complete goods, that is, items currently being used in the
production process. Finished goods stock represent completed products
ready to be sold.

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5. Explain different steps involved in preparation


of Fund Flow Statements.
Steps in Preparation of Fund Flow Statement
1. Preparation of schedule changes in working capital (taking current items
only).
2. Preparation of adjusted profit and loss account (to know fund from [or]
fund lost in operations).
3. Preparation of accounts for non-current items (Ascertain the hidden
information).

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6. State merits and demerits of Marginal Costing.


Merits of Marginal Costing
Merits of Marginal Costing are as follows: 1. Constant in nature :

Marginal cost remains the same per unit of output whether there is increase or
decrease in production.
2. Realistic :
It is realistic as fixed cost is eliminated. Inventory is valued at marginal cost.
Therefore, it is more realistic and uniform. No fictitious profit arises.
3. Simplified overhead Treatment :
There is no complication of over-absorption and under-absorption of overheads.
4. Facilitates control :
Classification of cost as fixed and variable helps to have greater control over costs.

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