Nonlinear Insights Publication - Nonlinear Insights Publications

First Course in Financial Accounting

Author Name :

Dr. Asish Kumar Bhattacharyya

Language: English
Binding: Paperback
Genre: Commerce and Management
Publisher: Nonlinear Insights Publication

ISBN: 9788196908812
Year: 2024
Edition: 3

Overview :

Table of Contents

Preface

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Instructors

CHAPTER - 1 : Accounting As An Information System 1-43
The Nature And Purpose Of Accounting 1

Accounting - The Business Language 1
Financial Accounting 2
Management Accounting 4
Components Of Financial Accounting 4

Business Purpose And Activities 5
Business Purpose 5
Business Activities 7

Financial Capital 8
Equity Capital 8
Debt Capital 8
Preference Share Capital 9

Firm Structures 10
Business Judgment Rule 11
Choosing The Firm Structure 12
Limited Liability Company 13
Corporate Governance 14

Five Pillars Of Financial Reporting 15
Generally Accepted Accounting Principles (Gaap) 15
Accounting Conventions 17
Accrual Accounting 17
Going Concern 19
Prudence (Conservatism) 20
Money Measurement 21
Substance Over Form 21
Qualitative Characteristics 22
Accounting Ethics 23
Internal Controls 24

Measurement Attributes 25
Historical Cost Principle 26
Fair Value Principle 26

Financial Statements And Annual Report 28
Financial Statements 28
Annual Report 29
Answers To Self Test Questions 31
Assignments 31

CHAPTER - 2 : Balance Sheet And Income Statement–Relevant Concepts 44-107
Accounting Equation 44
Balance Sheet 45

Market Value Of Equity 46
Assets, Liabilities, Income And Expenses 51

Asset 51
Liability 52
Income 53

CONTENTS

Expense 54
Aggregation And Disaggregation 55

Principles 56
Commonly Used Groupings Of Assets, Liabilities 57

Commonly Used Groupings Of Assets 57
Commonly Used Groupings Of Liabilities 60
Commonly Used Groupings Of Equity 61
Commonly Used Groupings Of Income 63

Schedule Iii, Division Ii Requirements 65
Balance Sheet 65
Statement Of Profit And Loss 71
Income Statement Format 72
Profit Hierarchy 73

Bank Financial Statements – Unique Features 76
Business Model Of Commercial Banks 77
Loans 77
Balance Sheet Format 78
Capital And Liabilities 79
Other Liabilities And Provisions 80
Assets 80
Profit And Loss Account Format 81
Banking Risk Management 82

Answers To Self-Test Questions 87
Assignments 88

CHAPTER - 3 : Accounting Cycle: Bookkeeping 108-166
Accounting Cycle 108
General Ledger, Books Of Primary Entry And He T Account 109

General Ledger 109
Accounts Manual And Chart Of Accounts 109
T Accounts 112
Double Entry Bookkeeping And Debit-Credit Rules 113
Balancing T-Account 122
Normal Balance 123

Books Of Prime Entry And Subsidiary Ledgers 124
Cash Book 124
Purchase Daybook 129

Trial Balance 136
Rectification Of Errors 138

Answers To Self-Test Questions 142
Assignments 146

CHAPTER - 4 : Accounting Cycle: Preparation Of Financial Statements 167-253
Adjustments In Income Accounts 167

Journal Proper 171
Adjustments In Expense Accounts 172
Impairment Loss 177
Adjustment For Closing Stock 183
Gain From The Sale Of An Item Of Pp & E 187

Bank Reconciliation Statement 190
Presentation 191

Financial Statements Of Trading Firms 195
Trading Account 196
Profit And Loss Account 200
Balance Sheet 204

Financial Statements Of Manufacturing And Service Firms 214
Trading And Profit And Loss Account Of Service Firms 217
Capital And Revenue Expenditure 218
Closing Entries 218
Profit And Loss Appropriation Account 218

Review Problems 220
Answers To Self-Test Questions 224
Solution To Review Problems 224
Assignments 231

CHAPTER - 5 : Cash Flow Statement 254-300
Statement Of Cash Flow: Basic Principles 254

Benefits Of Cash Flow Information 254
Cash And Cash Equivalents 255
Classification Of Activities 256
Cash Flow From Operating Activities 257
Direct And Indirect Methods 259

Cash Flows From Investing And Financing Activities 263
Cash Flows From Investing Activities 263
Non-Cash Transactions: Disclosures 263

Review Problems 264
Exchange Difference 270

General Principle 270
Operating Cash Flows - Direct Method 270
Operating Cash Flows - Indirect Method 270
Determining The Value Of Non-Operating Cash Flows 271
Exchange Difference Relating To Cash And Cash Equivalents 271

Cash Generating Efficiency 271
Cash Flow Yield 272
Cash Flow To Sales 272
Cash Flow To Assets 273

Answers To Self-Test Questions 273
Solution To Review Problems 273
Assignments 281

CHAPTER - 6 : Financial Statement Analysis 301-382
Vertical Analysis (Common Size Financial Statements) 301
Horizontal Analysis 305
Purpose Of Financial Ratio Analysis 308

Cross-Sectional And Trend Analyses 308
Users Of Financial Ratios 310

Limitations Of Financial Statement Analysis 311
Reorganisation Of Financial Statements 316

Reorganisation Of The Balance Sheet 316
Reorganisation Of The Income Statement 322

Dupont Model 325
Level 1: Decomposition Of Roe 326
Level 2: Decomposing Rnoa 328
Dupont Ratios At A Glance 334

Activity Ratios And Profitability Ratios 337
Activity Ratios 337
Profitability Ratios 338

Working Capital Management 342
Goal Of Working Capital Management 343
Working Capital Cycle 343
Conversion Cycle 344
Calculation Of Turnover Ratios 344
Current Ratio 345

Financial Health: Solvency 346
Financial Leverage 346
Coverage 349
Debt Service Coverage Ratio (Dscr) 350
Financial Health: Liquidity 351
Current Ratio 351
Cash-Based Ratios 352

Evaluating Market Strength 354
Altman’s Z Score 358

Analyses Of The Bank’s Financial Statements: Key Ratios 358
Return On Equity 360

Answers To Self-Test Questions 365
Assignments 366

CHAPTER - 7 : Evaluating Group Financial Position And Performance 383-414
Consolidated Financial Statements: Basic Principles Concept Of Group 383

Holding-Subsidiary Relationship 383
Associates 384
Joint Venture 384

Consolidation Process – Parent And Its Subsidiaries 384
Consolidation Process – Associates And Joint Ventures 385
Special Items In Consolidated Balance Sheets And Statements Of Profit And Loss 386

Special Items In Consolidated Balance Sheet 386
Special Items In The Consolidated Statement Of Profit And Loss 389

Financial Ratios – Consolidated Financial Statements 393
Investment In Associates 393
Minority Shareholders’ Interest In Equity 394

Calculation Of Group’s Roic 394
Consolidation Method – Simple Examples 396

Consolidation Of Statements Of Profit And Loss 401
Answers To Self-Test Questions 409
Assignments 409

CHAPTER - 8 : Property, Plant And Equipment 415-477
Pp & E - Definition And Classes Of Pp & E 415

Steps In Accounting For Assets And Liabilities 415
Classification Of Non-Financial Assets 516
Pp&E – Definition 417

Pp & E: Recognition Principle 420
Principle 1: Recognition Criteria 420
Principle 4: Subsequent Expenditure 422

Pp & E: Initial Measurement (Measurement At Recognition) 425
Principle 425
Cost Elements 425
Commencement And Cessation Of Cost Accumulation 431

Expenditure During Construction Period 431
Borrowing Costs 432
Dismantling And Site Restoration Cost 433

Pp & E: Subsequent Measurement 437
Cost Model 438
Revaluation Model 438
Derecognition 441

Depreciation 442
Accounting Principle 442

Component Accounting 447
Depreciation Methods 447

Natural Resources 451
Initial Measurement 451
Subsequent Measurement 451
Depletion 451

Impairment 453
Cash Generating Unit 453
Impairment Of Exploration And Evaluation Assets 459

Answers To Self-Test Questions 460
Assignments 460

CHAPTER - 9 : Other Non-Financial Assets And Financial Assets 478-552
Intangible Assets 478

Definition 478
Recognition 480
Internally Generated Intangible Assets 480

Right-Of-Use Assets And Lease Accounting 486
Accounting By Lessor 486
Characteristics Of Lease Contracts 490
Accounting By Lessor 492

Investment Property 499
Recognition 500
Measurement 500

Inventory Valuation 501
Definition 501
Measurement 502
Impact Of Cost Formula On The Balance Sheet And The Income Statement 513

Financial Assets 516
Definition 516
Classification Of Financial Assets 517
Sppi Criterion 519
Impairment Of Financial Assets 525
Loss Allowance For Trade Receivables And Lease Receivables 530

Answers To Self-Test Questions 532
Assignments 532

CHAPTER - 10 : Liabilities, Income And Expenses 553-610
Liabilities 553

Recognition 553
Measurement 553
Provision For Post-Retirement Benefits To Employees 556

Revenue 560
Identifying The Contract 561
Performance Obligation 563
Recognising Revenue 579
Application Issues 584
Miscellaneous Issues 588

Other Income 591
Interest Income 591
Dividend Income 591
Government Grant 591

Expenses 594
Interest Expense 594
Discretionary Expenses 594
Exchange Difference 594

Answers To Self-Test Questions 598
Assignments 598

CHAPTER - 11 : Accounting Ethics 611-
Introduction 611

Nature Of Ethics 611
Business Ethics 612
Responsible Business 612
Professional Ethics 613
Code Of Ethics For Professional Accountants 614

Model Code 614
Unique Features Of The Accounting Profession 614
Fundamental Principles Of The Code Of Ethics 615

Threats To Complyingwith Ethical Principles 620
Ethical Dilemma – Examples Of Situations 622
Assignments 625

Index 627
Excerpts Of Reviews By Eminent Reviewers 637

More Less

Preface to the Third Edition

I am quite happy with the feedback from students and instructors. They found that the pedagogy used is appropriate for management students studying the subject for the first time. Even those from a Commerce or Business Administration background find the approach new and refreshing. Therefore, I have not changed the structure, presentations, and examples. However, I have added some new examples and simplified the language wherever necessary.

I have substantially revised the chapter on Financial Statement Analysis to simplify the calculations and presentations. I have also used the financial statements for the year 2022-2023. In the ratio analysis, I started with the DuPont Analysis to improve the flow of discussion.

Unfortunately, mistakes crept into the second edition of the book. The publisher and I have made efforts to make the third edition error-free. We are largely successful.
I hope that students and instructors will find the revisions helpful.

-Asish K Bhattacharyya

Preface to the Second Edition

and students. They appreciated the content, pedagogy, and lucidity of the presentation. They liked the real-life examples presented in the book. Therefore, I have kept the structure of the book the same. I have not added any new material except a chapter on accounting ethics. Rather I have controlled my temptation to add new material, as I do not want to increase the number of pages in the book. I included questions on ethical issues in chapter-end assignments in the first edition. The new chapter will help students understand ethical principles and ethical issues accountants face and address ethical issues included in assignments.

Copy editing errors crept in the first edition. All those errors have been corrected. The new publisher has decided to improve the production quality to make the book a pleasant read.

I hope that more and more instructors will use the book for UG and graduate programmes in management.

-Asish K Bhattacharyya

Preface to the First Edition

The title has come out of my experience of teaching Financial Accounting in the first semester of MBA programmes since 1992 in India’s top B-schools including Indian Institute of Management Calcutta (IIMC) and SPJIMR, Mumbai. Although, the title covers the standard material being used in MBA programmes, my disposition, which is liked by my students, is little different from others. Presentation of the material in this title reflects the same.

I have presented the material in jargon free language, keeping in mind that students with variety of educational background join MBA programmes and will not opt for Finance specialisation. I have included material that is essential and can be covered in 30-45 hours of classroom learning and explained each concept with simple examples. Some additional materials like lease accounting and consolidation financial statements are added for ambitious students. Indian case studies have been used wherever appropriate.

Learning accounting requires practice. Hence, sufficient questions and problems have been included as review questions and assignments. Solutions to review problems have also been provided. Focus is on variety rather than numbers.

Chapter-end assignments are divided into six sections – conceptual understanding, critical thinking and situation analysis, decision-making, holistic business acuity, ethical issues and problem solving. Few questions are included in sections other than conceptual understanding and problem solving, which instructors can discuss in the class or provide as assignments to enable students to appreciate the linkages between financial accounting and other business functions and ethical issues in decision-making.

-Asish K Bhattacharyya

ABOUT THE BOOK

FIRST COURSE IN FINANCIAL ACCOUNTING FOR BUSINESS MANAGERS 3rd Edition By Asish K Bhattacharyya About the book The textbook is targeted at the management students, covering the topics taught in the core Financial Accounting course in different Universities and Business School management programmes. The material is presented lucidly to facilitate learning of the subject for the first time.

Key Features: