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Solutions Manual for Accounting For Managers Interpreting Accounting Information for Decision Making 4th Edition By Paul M. Collier

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Manual for Accounting For Managers Inter

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Manual For Accounting For Managers Inter

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solutions manual for accounting for managers inter

Institution Manual for Accounting For Managers Inter
Course Manual for Accounting For Managers Inter

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Chapter1 l Solutions

1.1 Explain the difference between accounting, an account, and
l l l l l l l

accountability.
l

Accounting is a collection of systems and processes used to record, report and
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interpret business transactions. An account is an explanation or report in
l l l l l l l l l l l

financial terms about those transactions. Accountability arises from the
l l l l l l l l l

stewardship function, that managers have to provide an account to other
l l l l l l l l l l l

stakeholders in the business.
l l l l

1.2 Summarise the main activities of management accountants. l l l l l l

The main activities of management accountants includes participation in
l l l l l l l l

planning, primarily through budgets; generating, analysing, presenting and
l l l l l l l l

interpreting information to support decision-making, and monitoring and
l l l l l l l l

controlling performance.
l l

1.3 Explain how the role of management accounting has changed over the last
l l l l l l l l l l l

100 years.
l l

The origin of management accounting was cost accounting in factories, where
l l l l l l l l l l

accountants were close to the business and advised non-financial managers.
l l l l l l l l l l

Management accountants have advised on economies of scale as well as of scope l l l l l l l l l l l l

as businesses grew and diversified as divisionalization, conglomerates and
l l l l l l l l l

multinational organizations increased the demand for accounting information.
l l l l l l l l

Non-financial performance information has come to challenge management
l l l l l l l l

accounting information. Although new techniques have been developed, new
l l l l l l l l l

manufacturing technologies and the growth of service industries has not been
l l l l l l l l l l l

matched by the changing role of management accountants. Management
l l l l l l l l l

accounting is increasingly decentred in organizations, with IT carrying out the
l l l l l l l l l l l

bulk of routine transaction processing. Organizations are increasingly looking
l l l l l l l l l

for management accountants to use their financial expertise to contribute to
l l l l l l l l l l l

strategy formulation and implementation.
l l l l

,Chapter 2 l Solutions

2.1 Explain the idea of value-based management and how shareholder value
l l l l l l l l l

relates to the interaction between product and capital markets.
l l l l l l l l l

Value-based management uses a variety of techniques to measure increases in l l l l l l l l l l

shareholder value, which is assumed to be the primary goal of all business
l l l l l l l l l l l l l

organizations. Shareholder value refers to the economic value of an investment
l l l l l l l l l l l

by discounting future cash flows to their present value using the cost of capital for
l l l l l l l l l l l l l l l

the business. To achieve shareholder value, a business must generate profits in
l l l l l l l l l l l l

their markets for goods and services (product markets) that exceed the cost of
l l l l l l l l l l l l l

capital (the weighted average cost of equity and borrowings) in the capital
l l l l l l l l l l l l

market.
l

2.2 Explain the key issues in corporate governance as they relate to
l l l l l l l l l l

accounting.
l

The responsibilities of the Board include setting the company’s strategic goals,
l l l l l l l l l l

providing leadership to senior management, monitoring business performance
l l l l l l l l

and reporting to shareholders. The last two of these explicitly relate to accounting,
l l l l l l l l l l l l l

and the first two implicitly do so. In the UK the Combined Code and in the US the
l l l l l l l l l l l l l l l l l l

Sarbanes-Oxley Act include important responsibilities of the Board in relation to
l l l l l l l l l l l

financial statements and performance management. The role of a Board is to
l l l l l l l l l l l l

provide leadership of the company within a framework of prudent and effective
l l l l l l l l l l l l

controls which enables risk to be assessed and managed. These controls include
l l l l l l l l l l l l

many accounting controls including budgets, capital expenditure evaluations,
l l l l l l l l

etc. The financial reports of a company are the responsibility of the Board which
l l l l l l l l l l l l l l

must ensure that the company keeps proper accounting records which disclose
l l l l l l l l l l l

with reasonable accuracy the financial position of the company at any time and
l l l l l l l l l l l l l

ensure that financial reports comply with the Companies Act. The Board is also
l l l l l l l l l l l l l

responsible for safeguarding the company’s assets and for taking reasonable steps
l l l l l l l l l l l

to prevent and detect fraud.
l l l l l

,Chapter 3 l Solutions
3.1 An accounting system comprises accounts that can be grouped into:
l l l l l l l l l

c) assets, liabilities, income and expenses
l l l l l

3.2 A transaction to record the sale of goods on credit would involve a double
l l l l l l l l l l l l l

entry for the sales value to the following accounts:
l l l l l l l l l

d) increase debtors and increase sales
l l l l l

Note there also is an associated entry for the cost of goods sold: increase cost of
l l l l l l l l l l l l l l l

sales and reduce inventory
l l l l

3.3 A retail business has sales of £100,000 cost of goods sold of £35,000 salaries
l l l l l l l l l l l l l

of £15,000 rental of £4,000 and advertising of £8,000. All of the income and
l l l l l l l l l l l l l l

expenses have been paid out of the owner’s initial capital of
l l l l l l l l l l l

£25,000. In addition, the business paid cash of £30,000 for stock (which
l l l l l l l l l l l

remains unsold) and purchased equipment on credit for £20,000. The
l l l l l l l l l l

financial statements of the business would show:
l l l l l l l

b) Profit of £38,000 cash of £33,000 and capital of £63,000
l l l l l l l l l

l Profit Sales 100,000
Cost of sales l l -35,000
Salaries
l -15,000
Rent - 4,000 l

Advertising - 8,000 l

£38,000

Cash Capital£25,000
Plus profit 38,000 l

- Inventory
l -30,000
£33,000

Capital Initial £25,000
Plus profit l 38,000
£63,000

Assets
Cash 33,000 + Equipment 20,000 + Inventory 30,000 = 83,000 Liabilities
l l l l l l l l l l

Creditors (Equipment) 20,000 + Capital 63,000 = 83,000 l l l l l l l

3.4 A Balance Sheet shows liabilities of £125,000 and assets of £240,000. The
l l l l l l l l l l l

Income Statement shows income of £80,000 and expenses of £35,000.
l l l l l l l l l l

Capital is:
l l

b) £115,000

, Capital = assets – liabilities = 240,000 – 125,000 = 115,000
l l l l l l l l l l

3.5 A transaction to record the purchase of fixed assets on credit would
l l l l l l l l l l l

involve:
l

c) increasing creditors and increasing fixed assets l l l l l

3.6 For each of the following transactions, identify whether there is an
l l l l l l l l l l

increase or decrease in profit, cash flow, assets or liabilities:
l l l l l l l l l l

Transaction Profit Cash Flow l Assets Liabilities
Income- l (excluding
l Expenses cash)l

Issuessharesto l l Increases Increases
public
l (Equity)
l

Borrowsmoney l Increases Increases
over 5 years
l l l (Longterm
l l

debt)
l

Payscashfor
l l Decreases Increases
equipment
l (Fixedasset)
l l

Buysinventoryon
l l Increases Increases
credit
l (Current
l (Current
l

asset:stock)
l l liability:
l

creditors)
Sellsgoodson
l l Increases 1. Increases
credit
l (Sellingprice
l l (Current
l

less cost
l l asset:debtors
l l

price)
l @ selling
l l

price)
l

2. Decreases
(Current
l

lasset:stock@ l l

cost price)
l l

Pays cash for
l l Decreases Decreases
salaries,rent,etc.
l l l (Expenses)
l

Payscashto
l l Decreases Decreases
suppliers
l (Current
l

liability:
l

Creditor)
l

Receives cash l Increases Decreases
fromcustomers
l l (Current
l

asset:debtors
l l

Depreciates Decreases Decreases
equipment
l (Depreciation
l (Fixedassets)
l l

expense)
l

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Exam (elaborations)

Solutions Manual for Accounting For Managers Interpreting Accounting Information for Decision Making 4th Edition By Paul M. Collier

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