115 Accounting AS Level Theory and Practice

Description

( Accounting AS Level ) TABLE OF CONTENTS

Current financial reporting practices have been under major review with the approach of a single market, moving towards harmonization. Consequently, all global syllabuses, from December 2007 onwards, use international terminology.

The globalized frame work of Cambridge International Advanced Level, in practice over 125 countries, has led to the introduction of an international format and layout for all its syllabuses.

This book Accounting A Level Theory and Practice Article Number 115 is intended to cover the accounting content of CIE Advanced Level syllabus 9706 comprehensively. With a thorough discussion of the basic double entry principles for the beginners, it is also useful for those who have some knowledge. (Accounting AS Level)

The strengths and weaknesses of accounting practices are reinforced by a set of Review Questions at the end of each chapter, enabling the students to put, what is learnt, into practice. These Questions have been developed by the author and are not taken from past exam papers.

(Accounting AS Level)

The Review Questions have been set in increasing order of difficulty and each odd number Question is complimented by an even numbered question with the same difficulty level.

Solutions to odd numbered questions are given in the appendix at the end of the book. In addition solutions to even numbered questions are available in a separate manual. Teachers using “AS Accounting Theory and Practice” as a text book, may get the manual by applying officially on a school letterhead. Providing the students with a solid foundation in the “Why” as well as the “How” of accounting concepts, the emphasis is put on understanding rather than mere cramming.

A brief list of learning objectives at the beginning of each chapter will assist the readers to determine the things they should understand while going through the chapter. Hence, checking back may help them to identify weak areas which still need thorough review. I would like to thank numerous people for the contribution they made to the writing of this book. In particular,

I gratefully acknowledge the input that Mr. Sajid Munir made in developing the Review Questions, text for various chapters and for his constructive criticism throughout the process of developing the book. In addition, my thanks owe to the Sheraz Siddiq, Waseem Zia, Zafar Hashmi, Rabia Malik for their continuous support, insightful comments and suggestions during several stages of the book development.

Following are the topics covered in this book

PREFACE (Accounting AS Level)
CHAPTER 1 BOOKKEEPING AND ACCOUNTING
1 BRANCHES OF ACCOUNTING
1 ACCOUNTING EQUATION
1 Assets 17
1 Liabilities 17
1 Equity 17
1 Drawings 17
1 TRANSACTION
1 Cash Transactions 17
1 Credit Transactions 17
1 BALANCE SHEET (STATEMENT OF FINANCIAL POSITION)
1 Balance Sheet (Vertical Style) 19
REVIEW QUESTIONS

CHAPTER 2 ACCOUNTING FOR ASSETS, LIABILITIES AND CAPITAL 
2 EVOLUTION OF BOOK KEEPING
2 RULES OF DEBIT AND CREDIT
2 LEDGER
2 ACCOUNT
2 “T” Account 26
2 DOUBLE-ENTRY RELATING TO ASSETS AND LIABILITIES
2 EXAMPLE 27
2 BALANCING OF AN ACCOUNT
2 When should accounts be balanced? 30
2 TRIAL BALANCE
2 Uses of a Trial Balance 31
2 Why is it Necessary for a Trial Balance to ‘Balance’? 31
2 Trial Balance – An aid to Financial Statements 32
REVIEW QUESTIONS

CHAPTER 3 ACCOUNTING FOR INVENTORIES
3 INVENTORY OF GOODS
3 BOOKKEEPING FOR INVENTORY OF GOODS
3 PURCHASES
3 Cash Purchases 35
3 Credit Purchases 36
3 SALES
3 Cash Sales 36
3 Credit Sales 36
3 PURCHASES RETURNS (RETURN OUTWARDS)
3 SALES RETURNS (RETURNS INWARDS)
3 TRADING SECTION OF INCOME STATEMENT
3 CLOSING OF INCOMES AND EXPENSES
3 CLOSING INVENTORY
3 OPENING INVENTORY
3 CALCULATION OF PROFITS FOR SERVICE BUSINESSES
REVIEW QUESTIONS

CHAPTER 4 ACCOUNTING FOR INCOMES AND EXPENSES
4 INCOMES
4 EXPENSES
4 DOUBLE-ENTRY FOR EXPENSES AND INCOMES (REVENUES)
4 BOOKKEEPING FOR INCOMES AND EXPENSES
4 CALCULATION OF PROFIT FOR THE YEAR
4 CLOSING OF INCOMES AND EXPENSES
REVIEW QUESTIONS

CHAPTER 5 FINANCIAL STATEMENTS-AN INTRODUCTION
5 NEED FOR INCOME STATEMENT
5 USES OF INCOME STATEMENT
5 CARRIAGE INWARDS
5 CARRIAGE OUTWARDS
5 INCOME STATEMENT AND BALANCE SHEET-AN IMPORTANT CONSIDERATION
5 ACCOUNTING PERIOD
5 DRAWINGS
5 ASSETS
5 Non-Current Assets 52
5 Current Assets 52
5 LIABILITIES
5 Current Liabilities 52
5 Non-Current Liabilities 52
REVIEW QUESTIONS

CHAPTER 6 BOOKS OF ORIGINAL ENTRY & DIVISION OF LEDGER
6 ADVANTAGES OF MAINTAINING BOOKS OF ORIGINAL ENTRY
6 COMPONENTS OF BOOKS OF ORIGINAL ENTRY
6 SALES JOURNAL
6 Posting from the Sales Journal to the Ledger 63
6 Trade Discount 63
6 Sales on Credit Card 64
6 PURCHASES JOURNAL
6 Posting from the Purchases Journal to the Ledger 64
6 RETURN INWARDS JOURNAL
6 Posting from the Returns Inwards Journal to the Ledger 65
6 RETURN OUTWARDS JOURNAL
6 Posting from the Returns Outwards Journal to the Ledger 66
6 GENERAL JOURNAL
6 Posting from the General Journal to the Ledger 68
6 CASH BOOK
6 Two Column Cash Book 68
6 Cash Discounts 69
6 Three Column Cash Book 69
6 Nature of Discounts Columns 69
6 Folio Columns 70
6 Contra Entries 70
6 Balancing of Cash and Bank Columns 70
6 Cash Book in Recent Times 70
6 PERSONAL LEDGERS
6 CASH BOOK
6 GENERAL LEDGER
6 PRIVATE LEDGER
REVIEW QUESTIONS

CHAPTER 7 BANK RECONCILIATION STATEMENTS
7 REASONS FOR DIFFERENCE BETWEEN BANK STATEMENT AND CASH BOOK BALANCE
7 Items in the Bank Statement but not in the Cash Book 76
7 Items in the Cash Book but not in the Bank Statement 76
7 BANK RECONCILIATION STATEMENT
7 STEPS FOR PREPARING A BANK RECONCILIATION STATEMENT
7 USES OF BANK RECONCILIATION STATEMENT
REVIEW QUESTIONS

CHAPTER 8 BAD DEBTS AND PROVISION FOR DOUBTFUL DEBTS 
8 BAD DEBTS
8 DOUBTFUL DEBTS
8 PROVISION FOR DOUBTFUL DEBTS
8 General Provision for Doubtful Debts 86
8 Specific Provision for Doubtful Debts 87
8 Calculation of Provision for Doubtful Debts 87
8 Treatment of Provision in Financial Statements 87
8 AGEING SCHEDULE
8 BAD DEBTS RECOVERY
8 CASH DISCOUNTS ALLOWED AND PROVISION FOR DISCOUNTS ALLOWED
8 Benefits of Offering Cash Discounts 89
8 Recording of Provision for Discounts Allowed in Journal 90
8 WHY PROVISIONS ARE MADE FOR BAD DEBTS AND DISCOUNTS ALLOWED
8 SALIENT POINTS TO NOTE
REVIEW QUESTIONS

CHAPTER 9 ACCOUNTING FOR NON-CURRENT ASSET
9 DEPRECIATION
9 AMORTIZATION AND DEPLETION
9 EFFECTS ON CASH FLOWS
9 RELATIONSHIP WITH MARKET VALUE
9 CAUSES FOR DEPRECIATION
9 FACTORS FOR CALCULATING DEPRECIATION
9 The Original Cost of Asset 95
9 The Estimated Useful Economic Life 95
9 The Approximate Residual Value 95
9 CHARACTERISTICS OF DEPRECIATION
9 WHY DEPRECIATION IS PROVIDED FOR?
9 METHODS FOR CALCULATING DEPRECIATION
9 Revaluation Method 96
9 Straight Line Method or Original Cost Method 96
9 Reducing Balance Method 97
9 ANNUAL DEPRECIATION UNDER REDUCING BALANCE & STRAIGHT LINE METHODS
9 DISTINCTIVE FEATURES OF STRAIGHT LINE AND REDUCING BALANCE METHOD
9 CHOICE OF A METHOD
9 DIFFERENCE BETWEEN DEPRECIATION AND PROVISION FOR DEPRECIATION
9 DEPRECIATION POLICIES
9 DEPRECIATION ACCOUNTING
9 DEPRECIATION AND ACCOUNTING CONCEPTS
REVIEW QUESTIONS

CHAPTER 10 ACCOUNTING CONCEPTS AND CONVENTIONS
10 CONVENTIONS AND CONCEPTS – AN IMPLICATION
10 DUAL ASPECT (DUALITY) CONCEPT
10 BUSINESS ENTITY CONCEPT
10 PRUDENCE CONCEPT
10 CONSISTENCY CONCEPT
10 MATERIALITY CONCEPT
10 REALISATION CONCEPT
10 ACCRUAL CONCEPT
10 MATCHING CONCEPT
10 SUBSTANCE OVER FORM
10 OBJECTIVITY
10 MONEY MEASUREMENT CONCEPT
10 HISTORICAL COST CONCEPT
10 GOING CONCERN CONCEPT
10 REVALUATION OF ASSETS
10 A CRITICAL REVIEW OF ACCOUNTING CONVENTIONS
REVIEW QUESTIONS

CHAPTER 11 CAPITAL AND REVENUE 
11 TREATMENT OF CAPITAL AND REVENUE ITEMS IN FINANCIAL STATEMENT
11 DISTINCTION BETWEEN CAPITAL AND REVENUE EXPENDITURES
11 Expenditures for Acquisition of a Non-current asset 113
11 Expenditures for Improving Efficiency /Capacity of a Non-current asset 113
11 Expenditure at the Initiation of Business 114
11 Expenditure on Extension of Business 114
11 Expenditures to Increase the Useful Life of an Asset 114
11 Expenditures of Abnormal Amounts 114
11 APPLICATION OF MATERIALITY CONCEPT
11 DIFFERENCE BETWEEN CAPITAL AND REVENUE RECEIPTS
11 Revenue Receipts 114
11 Capital Receipts 114
11 EFFECTS OF WRONG TREATMENT OF CAPITAL AND REVENUE ITEMS
REVIEW QUESTIONS

(Accounting AS Level )
CHAPTER 12 CORRECTION OF ERRORS AND SUSPENSE ACCOUNT
12 TYPES OF ERRORS
12 Errors Not Affecting Agreement of Trial Balance 118
12 Errors Affecting Agreement of Trial Balance 120
12 SUSPENSE ACCOUNT
12 EFFECT ON PROFIT OF CORRECTING ERRORS
12 EFFECTS ON BALANCE SHEET OF CORRECTING ERRORS
REVIEW QUESTIONS

CHAPTER 13 CONTROL ACCOUNTS
13 CONTROL ACCOUNTS IN CAMBRIDGE A LEVEL SYLLABUS
13 THE FORMAT OF SALES LEDGER AND PURCHASE LEDGER CONTROL ACCOUNTS
13 HOW CONTROL ACCOUNTS ARE PREPARED?
13 CONTRA ENTRY
13 TWO BALANCES OF CONTROL ACCOUNTS
13 Reasons for Having Two Balances of a Control Account 131
13 Treatment of Two Balances in the Balance Sheet 131
13 CORRECTION OF ERRORS IN CONTROL ACCOUNTS
13 ADVANTAGES AND USES OF CONTROL ACCOUNTS
13 LIMITATIONS (DISADVANTAGES) OF PREPARING CONTROL ACCOUNTS
REVIEW QUESTIONS

(Accounting AS Level )
CHAPTER 14 FINANCIAL STATEMENTS WITH ADJUSTMENTS
14 CASH AND ACCRUAL BASIS OF ACCOUNTING
14 NEED FOR ADJUSTMENTS
14 TYPES OF ADJUSTMENTS
14 INVENTORY AT YEAR END
14 Closing Inventory in Trial Balance 143
14 DRAWINGS OF GOODS FOR OWNER’S PERSONAL USE
14 ACCRUED EXPENSES
14 ACCRUED INCOMES
14 PREPAID EXPENSES (OTHER RECEIVABLES)
14 PRE-RECEIVED /DEFERRED INCOMES
14 TREATMENT OF OPENING ACCRUALS OR PREPAYMENTS
14 DEPRECIATION
14 Methods of Depreciation 146
14 Depreciation Policies 146
14 Recording of Depreciation 146
14 BAD DEBTS
14 Bad Debts written off (included in the trial balance) 147
14 Bad Debts to be written off (given as an adjustment) 147
14 PROVISION FOR DOUBTFUL DEBTS
14 ADJUSTING MORE THAN TWO ACCOUNTS
14 CALCULATION OF PROFITS FOR SERVICE BUSINESSES
14 USERS OF FINANCIAL STATEMENTS
14 LIMITATIONS OF FINANCIAL STATEMENTS
REVIEW QUESTIONS

(Accounting AS Level )
CHAPTER 15 ACCOUNTS FROM INCOMPLETE RECORDS
15 THE REASONS FOR INCOMPLETE RECORDS
15 NEED FOR PREPARING FINANCIAL STATEMENT FROM INCOMPLETE RECORDS
15 CALCULATING PROFITS AND LOSSES FROM CHANGES IN CAPITAL/NET ASSETS
15 Statement of Affairs 161
15 Statement of Profit or Loss 161
15 PREPARATION OF FINANCIAL STATEMENTS FROM INCOMPLETE RECORDS
15 Calculation of Opening capital through Statement of Affairs 162
15 Preparation of Cash/Bank Account 162
15 Calculation of Total Sales 162
15 Calculation of Total Purchases 163
15 Calculation of Incomes/Expenses to be shown in Income Statement 164
15 Calculation of Non-Cash Expenses 166
15 MARK-UP AND MARGIN
15 Use of Mark up and Margin to calculate Missing Items in Trading Section 167
15 Conversion of Mark-up into Margin 169
15 Conversion of Margin into Mark-up 170
15 CALCULATION OF GOODS LOST BY THEFT OR FIRE
15 PREPARING BALANCE SHEET FROM INCOMPLETE RECORDS
15 INVENTORY COUNT AND THE BALANCE SHEET DATE
15 DISADVANTAGES OR DEFECTS OF ACCOUNTS PREPARED FROM INCOMPLETE RECORDS
REVIEW QUESTIONS

CHAPTER 16 FINANCIAL STATEMENTS OF PARTNERSHIPS
16 CHARACTERISTICS OF PARTNERSHIP
16 ADVANTAGES AND DISADVANTAGES OF THE PARTNERSHIP
16 PARTNERSHIP AGREEMENT
16 Contents of Partnership Deed 183
16 PROVISIONS OF PARTNERSHIP ACT 1890 WHEN NO PARTNERSHIP AGREEMENT EXISTS
16 FINANCIAL STATEMENTS OF A PARTNERSHIP
16 Appropriations of profit 184
16 Balance Sheet of Partnerships 186
16 ACCOUNTING RECORDS FOR PARTNERS
16 Partners’ Capital Accounts 186
16 Drawings Accounts 187
16 Partners’ Loan Account 188
16 CALCULATION OF INTEREST ON CAPITAL
16 CALCULATION OF INTEREST ON DRAWINGS
16 PARTNER’S GUARANTEED SHARE IN PROFIT
REVIEW QUESTIONS

(Accounting AS Level )
CHAPTER 17 CHANGES IN PARTNERSHIPS
17 ADMISSION OF A NEW PARTNER
17 RETIREMENT OR DEATH OF AN EXISTING PARTNER
17 Final Settlement of Retired or Deceased Partner’s Capital 200
17 CHANGES IN PROFIT-SHARING ARRANGEMENTS
17 APPORTIONMENT OF PROFITS
17 ADJUSTMENTS FOR GOODWILL
17 Types of Goodwill 202
17 Factors Affecting Value of Goodwill 202
17 Valuation of Inherent Goodwill 203
17 Why Goodwill is accounted for in Partnership? 204
17 Accounting Treatment of Goodwill 204
Case 1 A Goodwill Account is Opened and Retained 204
Case 2 A goodwill Account is Opened and then Written Off 205
17 Change in Goodwill 206
17 REVALUATION ON PARTNERSHIP CHANGE
17 Opening of a Revaluation Account 207
17 Profit or Loss on Revaluation 207
17 Revaluation of Non-Current Assets with Provision for Depreciation 209
17 Revaluation and the Accounting Conventions 211
17 Values to Remain Unaltered in Books 211
17 CAPITAL IN PROFIT AND LOSS SHARING RATIOS
REVIEW QUESTIONS

CHAPTER 18 DISSOLUTION OF PARTNERSHIPS 
18 REASONS OF DISSOLVING A BUSINESS
18 REALISATION ACCOUNT
18 ACCOUNTING TREATMENT ON DISSOLUTION
18 Assets on Dissolution 225
18 Goodwill on Dissolution 225
18 Liabilities on Dissolution 225
18 Expenses on Dissolution 226
18 Profit (loss) on Realization Account 226
18 Partners’ Loans Accounts on Dissolution 226
18 Current Account Balances on Dissolution 226
18 Cash or Bank Balance on Dissolution 226
18 Partners’ Capital Accounts on Dissolution 227
REVIEW QUESTIONS

CHAPTER 19 FINANCIAL STATEMENTS OF COMPANIES
19 THE NEED FOR COMPANIES
19 CHOICE BETWEEN A PARTNERSHIP AND A LIMITED COMPANY
19 ADVANTAGES AND DISADVANTAGES OF FORMING A LIMITED COMPANY
19 Advantages of a Limited Company 233
19 Disadvantages of Forming a Limited Company 234
19 SOURCES OF FINANCE FOR A COMPANY
19 TYPES OF SHARES
19 Ordinary Shares 235
19 Preference Shares 235
19 DEBENTURES
19 TYPES OF PREFERENCE SHARES
19 Participating Preference Shares 236
19 Non-Participating Preference Shares 236
19 Cumulative Preference Shares 236
19 Non-Cumulative Preference Shares 237
19 FORMS OF CAPITAL
19 Authorized Share Capital 237
19 Issued Share Capital 237
19 Called Up Share Capital 238
19 Paid Up Capital 238
19 FINANCIAL STATEMENTS OF LIMITED COMPANIES
19 STATEMENT OF CHANGES IN EQUITY
19 EQUITY DIVIDENDS ON ORDINARY SHARES
19 IAS rules for Equity Dividends 239
19 Transfer to General Reserve 239
19 SHAREHOLDERS’ EQUITY
19 RESERVES
19 Capital Reserves 239
19 Revenue Reserves 240
19 FINANCIAL STATEMENTS IN CIE EXAMS
19 A COMPARISON OF FINANCIAL STATEMENTS OF BUSINESS ORGANISATIONS
REVIEW QUESTIONS

CHAPTER 20 ISSUE OF SHARES & DEBENTURES
20 PRICES OF A SHARE
20 Par Value 248
20 Issue Price 248
20 Book Value 248
20 Market Value 248
20 SELLING SHARES TO THE GENERAL PUBLIC
20 Issue of Shares at Par 249
20 Issue of Shares at Premium (at a price more than face value) 249
20 RIGHTS ISSUE
20 Advantages of Rights Issue 250
20 Disadvantages of Rights Issue 250
20 BONUS OR SCRIP ISSUE
20 Reasons for Bonus Issue 250
20 Effect on Earnings per Share (EPS) 251
20 Advantages of Bonus Issue 251
20 Disadvantages of Bonus Issue 252
20 DIFFERENCE BETWEEN RIGHTS AND BONUS ISSUE
20 ISSUE OF LOANS AND DEBENTURES
20 Issue of Debentures at Par 253
20 Issue of Debentures at Premium (at a Price more than Face Value) 254
20 Issue of Debentures at Discount (at a Price below Face Value) 254
REVIEW QUESTIONS

CHAPTER 21 RATIO ANALYSIS
21 FINANCIAL RATIOS
21 ANALYSIS OF RATIOS
21 Comparing one Year with Another (Trend or Time Series Analysis) 259
21 Comparing one Business with another Business (Cross-Sectional Analysis) 260
21 Rule of Thumb 260
21 DEMONSTRATION OF RATIOS
21 PROFITABILITY RATIOS
21 Gross Profit Ratio 260
21 Profit for the year Ratio 261
21 Operating Expenses Ratio 261
21 Return on Assets 262
21 Return on Capital Employed (ROCE) 262
21 Return on Equity 262
21 ACTIVITY RATIOS
21 Inventory Turnover Ratio 263
21 Trade Receivables’ Collection Period 263
21 Trade payables’ Payment Period 264
21 Non-Current Asset Turnover 264
21 LIQUIDITY RATIOS
21 Current Ratio 265
21 Liquid Ratio 265
21 USES OF RATIO ANALYSIS
21 LIMITATIONS OF RATIO ANALYSIS
21 USERS OF FINANCIAL RATIOS
21 PREPARATION OF FINANCIAL STATEMENTS WITH THE HELP OF RATIOS
REVIEW QUESTIONS

CHAPTER 22 STATEMENT OF CASH FLOWS
22 CLASSIFICATIONS OF CASH FLOWS – AN EXAMPLE
22 CASH AND CASH EQUIVALENTS
22 Cash 277
22 Cash Equivalents 277
22 Bank Overdrafts 277
22 PREPARATION OF A STATEMENT OF CASH FLOWS
22 CASH FLOW FROM OPERATING ACTIVITIES
22 Importance of Cash Flow from Operating Activities 277
22 CALCULATION OF CASH FLOW FROM OPERATING ACTIVITIES
22 Cash from Operating Activities in Direct Method 277
22 Cash from Operating Activities in Indirect Method 277
22 INVESTING ACTIVITIES
22 FINANCING ACTIVITIES
22 CASH FLOW AT A GLANCE
22 USES OF A STATEMENT OF CASH FLOWS
REVIEW QUESTIONS

CHAPTER 23 COST ACCOUNTING – AN INTRODUCTION
23 DIFFERENCE BETWEEN COST AND EXPENSE
23 COST CLASSIFICATION BY CHANGES IN ACTIVITY
23 Fixed Cost 290
23 Variable Costs 290
23 Mixed Costs 290
23 Step Costs 291
23 COST CLASSIFICATION BY TRACEABILITY
23 Direct Costs Error! Bookmark not defined
23 Indirect Costs 291
23 Sunk Costs 291
23 DIRECT LABOUR COST
23 INDIRECT LABOUR COST
23 LABOUR COST AND TIMEKEEPING
23 Clock Card (Time Card) 292
23 Time Sheets 292
23 Wage Sheet 292
23 CALCULATION OF LABOUR COST
23 Piece Work Wage System 292
23 Time Wage System (Pay on Time Basis) 293
23 OVERTIME
23 INCENTIVE SCHEMES AND BONUS PLANS
REVIEW QUESTIONS

CHAPTER 24 INVENTORY VALUATION – FURTHER ISSUES
24 INVENTORY VALUATION METHODS
24 First in First out (FIFO) 300
24 Last in First out (LIFO) 301
24 Weighted Average Cost (AVCO) 301
24 RELATIONSHIP OF INVENTORY VALUATION METHODS WITH PHYSICAL FLOW OF GOODS
24 BASES OF INVENTORY VALUATION
24 ROLE OF ACCOUNTING CONCEPTS IN INVENTORY VALUATION
24 SEPARATE VALUATION OF INVENTORY ITEMS
24 CALCULATION OF COST OF WORK IN PROCESS
24 EFFECTS OF ERRORS IN VALUING INVENTORY
24 GOODS ON SALE OR RETURN
24 Goods Sent to Customers on Sale or Return (Approval) Basis 303
24 Goods Received on Sale or Return (Approval) Basis 303
24 SYSTEMS OF INVENTORY ACCOUNTING
24 Periodic Inventory System 304
24 Perpetual Inventory System 304
REVIEW QUESTIONS

CHAPTER 25 ABSORPTION COSTING
25 ABSORPTION COSTING
25 CALCULATION OF TOTAL PRODUCTION COST
25 FEATURES OF ABSORPTION COSTING
25 ABSORPTION COSTING IN PRICE SETTING
25 COST CENTER
25 Production Cost Centers 312
25 Service Cost Centers 312
25 COST UNIT
25 ALLOCATION OF PRODUCTION OVERHEADS
25 APPORTIONMENT OF PRODUCTION OVERHEADS
25 ALLOTMENT OF SERVICE DEPARTMENT COSTS TO PRODUCTION DEPARTMENTS
25 Production Cost Centers 313
25 Service Cost Centers 314
25 Allotment of Non-Reciprocal Services 314
25 Allotment of Reciprocal Services 315
25 CALCULATION OF OVERHEAD ABSORPTION RATES
25 Actual Vs Predetermined Absorption Rate 317
25 Advantages of using Predetermined Overhead Absorption Rates 317
25 Choosing the Appropriate Absorption Base 320
25 Single (Factory wide) Overhead Absorption Rate 320
25 Departmental Overhead Absorption Rate 320
25 ABSORPTION OF OVERHEADS
25 OVER/UNDER ABSORBED OVERHEADS
25 Over-Absorbed Overheads 321
25 Under-Absorbed Overheads 321
25 COSTING SYSTEMS/METHODS
25 Specific Order Costing 321
25 Continuous Costing 322
REVIEW QUESTIONS

CHAPTER 26 MARGINAL COSTING
26 MARGINAL COST
26 MARGINAL COSTING
26 THE PRINCIPLES OF MARGINAL COSTING
26 ADVANTAGES AND DISADVANTAGES OF MARGINAL COSTING TECHNIQUE
26 Advantages 330
26 Disadvantages of Marginal Costing Technique 330
26 THE USES OF MARGINAL COSTING
26 CONTRIBUTION
26 BREAK EVEN ANALYSIS
26 Break-Even Point 331
26 Break-Even Point in Sales ($) Value 332
26 Target Profits 332
26 Break Even Chart 333
26 Assumptions and Limitations of Break Even Analysis 334
26 Significance of Break Even Analysis 335
26 MARGIN OF SAFETY
26 PROFIT-VOLUME CHART
26 How to Increase Contribution Ratio 337
26 INCOME STATEMENTS UNDER MARGINAL COSTING AND ABSORPTION COSTING
26 Profits of Marginal Costing and Absorption Costing 339
26 Difference between Marginal and Absorption Costing 339
26 SHORT TERM DECISION MAKING
26 MAKE OR BUY DECISION
26 Qualitative Factors for Make or Buy Decision 341
26 SPECIAL ORDER TO USE UP SPARE CAPACITY
26 Acceptance of Order with Negative Contribution 343
26 Conditions for accepting Order below Normal Price 343
26 Considerations for accepting order below Normal Price 344
26 Consequences of Acceptance of Order below Normal Price 344
26 ABANDONMENT OF A PRODUCT LINE/DEPARTMENT
26 Factors to be Considered before Closure of a Department 345
26 LIMITING FACTOR
26 Examples of Limiting Factors 345
26 Reducing the Effects of Limiting Factors 346
26 Decision- Making Process to Reduce Effects of a Limiting Factor 346
REVIEW QUESTIONS
CHAPTER 27 ACCOUNTING & BUSINESS PLANNING 359
27 DIFFERENCE BETWEEN BUDGETS AND BUDGETARY CONTROL
27 PURPOSES OF BUDGET
27 ADVANTAGES OF BUDGETARY CONTROL SYSTEM
27 LIMITATIONS OF BUDGETARY CONTROL SYSTEM
27 STAGES IN THE BUDGETARY PLANNING PROCESS
27 EFFECTS OF PRINCIPAL BUDGET FACTORS ON THE PREPARATION OF BUDGETS
27 BEHAVIOURAL ASPECTS OF BUDGETARY CONTROL SYSTEM

SOLUTIONS TO ODD NUMBERED QUESTIONS
CHAPTER 1
CHAPTER 2
CHAPTER 3
CHAPTER 4
CHAPTER 5
CHAPTER 6
CHAPTER 7
CHAPTER 8
CHAPTER 9
CHAPTER 10
CHAPTER 11
CHAPTER 12
CHAPTER 13
CHAPTER 14
CHAPTER 15
CHAPTER 16
CHAPTER 17
CHAPTER 18
CHAPTER 19
CHAPTER 20
CHAPTER 21
CHAPTER 22
CHAPTER 23
CHAPTER 24
CHAPTER 25
CHAPTER 26
KEY TO EVEN NUMBERED QUESTIONS